Factor Investing with Delays

Alexander Dickerson, Yoshio Nozawa and Cesare Robotti

No 771, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: We present a tractable framework for evaluating the cost of delays induced by infrequent trading in the corporate bond market. Using 341 corporate bond factors from OpenBondAssetPricing.com and machine learning models trained on their underlying signals, we demonstrate that, before transaction costs, 51 factors outperform the bond market. However, this number drops to nearly zero after accounting for trading frictions because the cost of delay is amplified for highly profitable factors. Trading a subset of liquid bonds does not eliminate this cost because liquidity is hard to predict and sales delays cannot be avoided, underscoring the critical impact of delay costs.

Keywords: Corporate Bonds; Liquidity; Market Efficiency; Fixed-Income Securities; Credit Risk; Machine Learning (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 105 pages
Date: 2025-07
New Economics Papers: this item is included in nep-big
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:771

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