Long-term reversals in the corporate bond market

Turan G. Bali, Avanidhar Subrahmanyam and Quan Wen

Journal of Financial Economics, 2021, vol. 139, issue 2, 656-677

Abstract: Long-term reversals in corporate bonds are economically and statistically significant in a comprehensive sample spanning the period 1977 to 2017. Such reversals are stronger for bonds with high credit risk and more binding regulatory, capital, and funding liquidity constraints. Bond long-term reversal is not a manifestation of the equity counterpart and is mainly driven by long-term losers. A long-term reversal factor carries a sizable premium and is not explained by long-established equity and bond market factors. Thus, past returns capture investors’ ex-ante risk assessment and the degree of institutional constraints they face, so losing bonds command higher expected returns.

Keywords: Corporate bonds; Long-term reversal (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:2:p:656-677

DOI: 10.1016/j.jfineco.2020.08.007

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