Outliers and Momentum in the Corporate Bond Market

Valentina Galvani and Lifang Li ()
Additional contact information
Lifang Li: Xi’an Jiaotong University

No 2022-3, Working Papers from University of Alberta, Department of Economics

Abstract: How we filter outliers matters in empirical research. As a demonstration, we analyze how momentum returns respond to different outlier treatments in the corporate bond market TRACE database. We find that momentum profitability depends crucially on return outliers. Specifically, outlier trimming vanishes momentum returns, whereas winsorization yields a robust but conservative assessment of the momentum effect. Price filters show that momentum is generated by low-priced bonds and volume filters reveal that momentum profits during the 2007-2009 crisis were due to the activities of small investors. Lastly, finer partitions of the bond cross-section are shown to deliver superior momentum gains without sacrificing portfolio diversification over bonds and issuers.

Keywords: momentum; outliers; winsorization; corporate bonds; TRACE (search for similar items in EconPapers)
JEL-codes: G01 G10 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2022-03-24
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://sites.ualberta.ca/~econwps/2022/wp2022-03.pdf Full text (application/pdf)

Related works:
Journal Article: Outliers and momentum in the corporate bond market (2023)
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:ris:albaec:2022_003

Access Statistics for this paper

More papers in Working Papers from University of Alberta, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Joseph Marchand ().