Boosting the Equity Momentum Factor in Credit
20 Pages Posted: 3 Sep 2020 Last revised: 28 Apr 2021
Date Written: April 27, 2021
Machine learning techniques have gained enormously in popularity in recent years, but so far only to a very limited extent in fixed income research. In this paper we would therefore like to do some pioneering work, and apply Boosted Regression Trees to the Equity Momentum factor in the corporate bond market. We report large performance gains to investors using these machine learning-driven forecasts, roughly doubling the alpha and information ratio to industry standard Equity Momentum strategies. Next to the past equity returns, we include size and liquidity of stocks and bonds into our model framework.
Keywords: Cross-Sectional Asset Pricing, Market Anomalies, Momentum, Machine Learning, Boosting
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation