Corporate Bond Factors: Replication Failures and a New Framework

Abstract

We demonstrate that the literature on corporate bond factors suffers from replication failures due to the lack of a common error-free dataset, inconsistent error-handling, and inconsistent factor constructions. Going beyond identifying this replication crisis, we create a clean database of corporate bond returns and propose a robust factor construction. Using this framework, we show that most, but not all, factors fail to replicate. Further, we show that a number of equity signals that are new to the corporate bond literature predict bond returns. In summary, most known factors fail, but so does the CAPM for corporate bonds.

Keywords: asset pricing, factors, data mining, replication, multiple testing, external validity JEL Codes: G11, G12, G14, G32, G4, C5

JEL Classification: G11, G12, G14, G32, G4, C5