Factor Investing in Emerging Market Credits
The Journal of Index Investing, Forthcoming
25 Pages Posted: 1 Oct 2019 Last revised: 6 Jul 2021
Date Written: June 28, 2021
We examine factors in a novel dataset on the cross-section of emerging market hard currency corporate bonds. We find that the size, low-risk, value, and momentum factors predict future excess returns. Single-factor and multi-factor portfolios obtain economically and statistically significant premiums. Further, alphas remain significant after controlling for exposures to developed market credit factors. The factor portfolios benefit from bottom-up allocations to countries, sectors, ratings, and maturity segments, as well as from bond selection within these segments. 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: Suggested Citation