Abstract

We offer empirical evidence that size, low-risk, value, and momentum factor portfolios generate economically meaningful and statistically significant alphas in the corporate bond market. Because the correlations between the single-factor portfolios are low, a combined multi-factor portfolio benefits from diversification among the factors: It has a lower tracking error and a higher information ratio than the individual factors. Our results are robust to transaction costs, alternative factor definitions, alternative portfolio construction settings, and constructing factor portfolios on a subsample of liquid bonds. Finally, allocating to corporate bond factors provides added value beyond allocating to equity factors in a multi-asset context.

About the Author(s)

Patrick Houweling
Jeroen van Zundert CFA

1 CE

including 1 SER

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Categories

Bonds

Additional Information

Published by CFA Institute

16 pages

https://doi.org/10.2469/faj.v73.n2.1

ISSN: 0015-198X

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