Cross-sectional Examination of the Corporate Bond Market Performance - The Rise of the Momentum and Contrarian Unidentified Factor Mimicking Corporate Bond Portfolios!

We examine momentum and reversal anomalies in corporate bond returns at the company-level employing a novel dataset, SoKat Credit, comprising bonds of 323 of the largest and liquid companies over the period from 2002 to 2020. Our study documents significant short-term reversal in the cross-sectional of corporate bond returns concentrated at the one week interval with annualized returns on the zero investment long-short portfolio of 9.9%. We also document the company-level momentum-spill-over effect into bond returns when sorting on past equity returns, that is, our “bond-stock” strategy, which delivers annualized returns of 5.0% are statistically significant and robust baring the usual suspects of caveats.