Exploiting uncertainty with market timing in corporate bond markets

Demir Bektić () and Tobias Regele ()
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Demir Bektić: Darmstadt University of Technology
Tobias Regele: Allianz Global Investors GmbH

Journal of Asset Management, 2018, vol. 19, issue 2, No 1, 79-92

Abstract: Abstract The purpose of this article is to show the usefulness of technical analysis in credit markets. We document that an application of a simple moving average timing strategy to US high-yield and US investment-grade corporate bond portfolios sorted by option-adjusted spread generates investment timing portfolios that substantially outperform the corresponding benchmark. For portfolios with high uncertainty, as measured by the option-adjusted spread, the abnormal returns generate economically and statistically significant returns relative to the capital asset pricing model, the four-factor model and additionally the bond factor model from Asness et al. (J Finance 68:929–985, 2013). Our results remain robust to different moving average formation periods, transaction costs, long–short portfolio construction techniques and alternative definitions of information uncertainty.

Keywords: Market efficiency; Market timing; Predictability; Behavioral finance; Technical analysis (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1057/s41260-017-0063-6

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