Reversal effect and corporate bond pricing in China

Heming Zhang and Guanying Wang

Pacific-Basin Finance Journal, 2021, vol. 70, issue C

Abstract: This paper documents significant price reversal in Chinese corporate bonds using transaction data from 2008 to 2018. We contribute to the existing literature by constructing a reversal factor and proposing a new corporate bond pricing model. Corporate bonds generating lower returns in the past months outperform those generating higher past returns. The reversal profits are strongest in portfolios with around 9-month formation period and disappear when the formation period reaches 12 months. After controlling for bond rating, maturity, turnover, and trading volume, the reversal effects remain significant. We construct a reversal factor and propose a four-factor model by incorporating the new factor into the default-term two-factor bond pricing model plus the bond market factor. The proposed four-factor model captures systematic risk and reversal effect well and makes a significant marginal contribution to explaining the excess return of corporate bond portfolios.

Keywords: Corporate bond; Reversal effect; Factor model (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X21001712
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:70:y:2021:i:c:s0927538x21001712

DOI: 10.1016/j.pacfin.2021.101664

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().