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Factor Investing in the Corporate Bond Market

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.

Author - Patrick Houweling , Jeroen Van Zundert
Journal - Financial Analysts Journal

Source - https://web.s.ebscohost.com/ehost/detail/detail?vid=0&sid=1f7c6295-8310-40c2-bf7a-d9123fad8724%40redis&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=123066715&db=bsh