Relative value in corporate bond sectors

Fei Leng () and Gregory Noronha
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Fei Leng: University of Washington Tacoma
Gregory Noronha: University of Washington Tacoma

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 3, No 2, 717-735

Abstract: Abstract It is common knowledge that financial sector bonds underperformed on a relative basis immediately following the financial crisis of 2008. We use the portfolio Sharpe ratio and factor regression models to gauge the relative performance of the financial, industrial and utility sectors on a risk-adjusted basis. As the data demonstrate, the underperformance of financial-sector bonds relative to other sectors exists not just for the post-crisis period of 2008–2015 but for the entire sample period of 1996–2015. In our sample of corporate bonds, the utility sector has the best relative performance during 1996–2015. Industrial sector bonds have similar performance to financials in the pre-crisis period and only outperform them post 2008. We find that the underperformance of financial-sector bonds during our sample period is largely attributable to their high relative volatility.

Keywords: Bond performance; Corporate bonds; Issuer sector; Financial crisis; G12; G14 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s11156-018-0723-8

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