Momentum Spillover from Stocks to Corporate Bonds

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CFA Digest
October 2017 | Vol. 47 | No. 10
Source: CFA Institute
Daniel Haesen, CFA Patrick Houweling Jeroen van Zundert, CFA
Sonia Gandhi, CFA (Reviewer)



A stock–bond momentum spillover strategy exhibits strong structural and time-varying credit risk exposure that reduces the profitability of the strategy and produces large drawdowns. If companies are ranked on their firm-specific equity returns (i.e., residual momentum) instead of their total equity returns, the credit risk exposures are halved, the Sharpe ratio doubles, and the drawdowns are substantially reduced.

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  • Equity Investments:
    • Equity Market Valuation and Return Analysis
  • Fixed Income:
    • Influence of Equity Market Changes on Bond Pricing
    • ·
    • Fixed Income Markets - Characteristics, Institutions, and Benchmarks
    • ·
    • Analysis of Credit Risk
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