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Tests of technical trading rules and the 52-week high strategy in the corporate bond market

William Montgomery, Ahmad Raza and Numan Ülkü

Global Finance Journal, 2019, vol. 40, issue C, 85-103

Abstract: This article presents the first tests of technical trend-following rules (TTRs) and the 52-week high strategy in individual corporate bonds, along with comparisons to corresponding stocks. Over the 2002–2015 period, TTR and the 52-week strategy are unprofitable in both bonds and stocks. Short legs of these trend-following strategies lead to significant losses in corporate bonds, which can be interpreted as evidence of bond investors' overreaction to bad news. Thus, short-term contrarian strategies, the profitability of which is viewed as the reward to liquidity provision, are more rewarding in corporate bonds. TTR buy signals can predict lower-volatility days in bonds as in stocks, despite the low/negative return correlations between the two.

Keywords: Technical trend-following rules; The 52-week high momentum strategy; Corporate bonds (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.gfj.2018.01.018

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Handle: RePEc:eee:glofin:v:40:y:2019:i:c:p:85-103