Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns

65 Pages Posted: 11 Oct 2020 Last revised: 30 Aug 2021

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

University of Warwick; Centre for Economic Policy Research (CEPR)

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Yoshio Nozawa

University of Toronto

Multiple version iconThere are 3 versions of this paper

Date Written: August 19, 2020

Abstract

Controlling for numerous attributes tied to default and priced asset risk, including yield, credit spread, bond rating, and maturity, we find that a corporate bond’s book value divided by its market price strongly predicts its return. Bonds with the 20% highest “bond book-to-market ratios” outperform their lowest quintile counterparts by 3%-4% per year, other things equal. The rapid decay in the ratio’s predictive efficacy with delay, the wide scope of the ratio’s efficacy across the bond-type spectrum, and the insufficient ability of factor risk to account for the anomaly rejects the thesis that the corporate bond market is perfectly informationally efficient.

Keywords: Credit Risk, Corporate Bonds, Book-to-Market, Market Efficiency, Transaction Costs, Point-in-Time

JEL Classification: G11, G12, G14

Suggested Citation

Bartram, Söhnke M. and Grinblatt, Mark and Nozawa, Yoshio, Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns (August 19, 2020). WBS Finance Group Research Paper, Available at SSRN: https://ssrn.com/abstract=3679755 or http://dx.doi.org/10.2139/ssrn.3679755

Söhnke M. Bartram (Contact Author)

University of Warwick ( email )

Warwick Business School
Finance Group
Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)

HOME PAGE: http://go.warwick.ac.uk/sbartram/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Yoshio Nozawa

University of Toronto ( email )

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Toronto, ON M5S3E6
Canada
3013125569 (Phone)

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