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Are capital market anomalies common to equity and corporate bond markets? An empirical investigation

journal contribution
posted on 2017-08-01, 00:00 authored by Tarun ChordiaTarun Chordia, A Goyal, Y Nozawa, A Subrahmanyam, Q Tong
Corporate bond returns exhibit predictability in a manner consistent with efficient pricing. Many equity characteristics, such as accruals, standardized unexpected earnings, and idiosyncratic volatility, do not impact bond returns. Profitability and asset growth are negatively related to corporate bond returns. Because firms that are profitable or have high asset growth (and hence more collateral) should be less risky, with lower required returns, the evidence accords with the risk-reward paradigm. Past equity returns are positively related to bond returns, indicating that equities lead bonds. Cross-sectional bond return predictors generally do not provide materially high Sharpe ratios after accounting for trading costs.

History

Journal

Journal of financial and quantitative analysis

Volume

52

Pagination

1301-1342

Location

Cambridge, Eng.

ISSN

0022-1090

eISSN

1756-6916

Language

eng

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

© 2017 Michael G. Foster School of Business, University of Washington

Issue

4

Publisher

Cambridge University Press