Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns

Söhnke Bartram, Mark Grinblatt and Yoshio Nozawa

No 27655, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Methodological insights generating comprehensive transaction-based bond datasets reveal that corporate bonds’ book-to-market ratios predict returns from prices transacted days after signal observation. Senior bonds (even investment-grade) with the 20% highest ratios outperform the 20% lowest by 3%–4% annually after non-parametrically controlling for numerous liquidity, default, microstructure, and priced-risk attributes: yield-to-maturity, structural model equity hedges, bid-ask-spread, duration/maturity, credit spread/rating, past returns, coupon, size, age, and industry. Spreads for all-bond samples are larger. An efficient bond market would not exhibit the observed decay in the ratio’s predictive efficacy with implementation delays, smaller yield-to-maturity spreads, or similar-sized spreads across differing liquidity/de-fault bond-types.

JEL-codes: G1 G11 G12 G14 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cfn and nep-fmk
Note: AP
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Citations: View citations in EconPapers (2)

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Working Paper: Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns (2022)
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