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Factor Investing in the Corporate Bond Market

Factor Investing in the Corporate Bond Market

11-12-2015 | Research

We provide empirical evidence that the Size, Low-Risk, Value and Momentum factors have economically meaningful and statistically significant risk-adjusted returns in the corporate bond market.

  • Jeroen  van Zundert
    Jeroen
    van Zundert
    Researcher Quantitative Credits
  • Patrick  Houweling
    Patrick
    Houweling
    Portfolio Manager

Since the factors capture different effects, a combined multi-factor portfolio halves the tracking error compared to the individual factors. The returns are up to three times larger than the market, and cannot be explained by risk or the equivalent equity factors. The results are robust to transaction costs, alternative factor definitions and the specific portfolio construction settings. Finally, allocating to corporate bond factors has added value beyond allocating to equity factors in a multi-asset context.

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