Factor Investing in Emerging Market Credits

29 Pages Posted: 1 Oct 2019 Last revised: 12 Nov 2019

See all articles by Lennart Dekker

Lennart Dekker

Tilburg University - Department of Finance

Patrick Houweling

Robeco Investment Research

Frederik Muskens

Robeco Investment Research

Date Written: November 11, 2019

Abstract

We examine factor investing in emerging market hard currency corporate bonds. Size, low-risk, value, and momentum factor portfolios obtain significantly higher Sharpe ratios than the market. We find the strongest results when the four factors are combined in a multi-factor portfolio. In several tests, alphas remain significant after controlling for exposures to developed market credit factors or equity factors. The factor portfolios benefit from bottom-up allocations to countries, sectors, ratings, and maturity segments, but most alphas remain significant after controlling for these allocation effects. Higher risk-adjusted returns of factor portfolios can also be found within liquid subsamples of the market.

Keywords: factor investing, corporate bonds, emerging markets

JEL Classification: G11, G12, G15

Suggested Citation

Dekker, Lennart and Houweling, Patrick and Muskens, Frederik, Factor Investing in Emerging Market Credits (November 11, 2019). Available at SSRN: https://ssrn.com/abstract=3457127 or http://dx.doi.org/10.2139/ssrn.3457127

Lennart Dekker

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Patrick Houweling (Contact Author)

Robeco Investment Research ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands
+31-10-2243538 (Phone)

HOME PAGE: http://www.robeco.com/quant

Frederik Muskens

Robeco Investment Research ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

HOME PAGE: http://www.robeco.com/quant

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