Factor-based Investing in Government Bond Markets: The Current State of Research

Abstract

Factor investing has become very popular during the last decades, especially with respect to equity markets. After extending Fama-French factors to corporate bond markets, recent research more often concentrates on the government bond space and reveals that there is indeed clear empirical evidence for the existence of significant government bond factors. Voices that state the opposite refer to outdated data samples. By the documentation of rather homogeneous recent empirical evidence, this review underlines the attractiveness of more sophisticated investment approaches, which are well established in equity and even in corporate bond markets, to the segment of government bonds.

Keywords: government bonds, sovereign bonds, factors, anomalies, risk premia, style investing

JEL Classification: G11, G12, G14, G15