True Value Investing in the Corporate Bond Market

Robbert-Jan ‘t Hoen, CFA, Patrick Houweling and Philip Messow

Financial Analysts Journal, 2025, vol. 81, issue 3, 100-121

Abstract: Value investing in the corporate bond market aims to identify mispricings by determining to what extent a bond’s credit spread compensates for its risk. By decomposing returns into a risk-taking and a repricing component, we show that existing value factors earn not only from capturing mispricings but also substantially from taking more risk. To better control for risk, we construct a value factor based on an ensemble of machine learning methods. We find that it earns less from risk-taking and more from repricing and is thus closer to a “true” value factor. It also delivers the highest returns after costs.

Date: 2025
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DOI: 10.1080/0015198X.2025.2483183

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