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Exploiting Uncertainty with Market Timing in Corporate Bond Markets

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  • Bektic, D.
  • Regele, T.

Abstract

The purpose of this article is to show the usefulness of technical analysis in credit markets. We document that an application of a simple moving average timing strategy to US high-yield and US investment-grade corporate bond portfolios sorted by option-adjusted spread generates investment timing portfolios that substantially outperform the corresponding benchmark. For portfolios with high uncertainty, as measured by the option-adjusted spread, the abnormal returns generate economically and statistically significant returns relative to the capital asset pricing model, the four-factor model and additionally the bond factor model from Asness et al. (J Finance 68:929–985, 2013). Our results remain robust to different moving average formation periods, transaction costs, long–short portfolio construction techniques and alternative definitions of information uncertainty.

Suggested Citation

  • Bektic, D. & Regele, T., 2018. "Exploiting Uncertainty with Market Timing in Corporate Bond Markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 92506, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:92506
    DOI: 10.1057/s41260-017-0063-6
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/92506/
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    Cited by:

    1. Guo, Xu & Lin, Hai & Wu, Chunchi & Zhou, Guofu, 2022. "Predictive information in corporate bond yields," Journal of Financial Markets, Elsevier, vol. 59(PB).
    2. Guo, Bin & Huang, Fuzhe & Li, Kai, 2022. "Time to build and bond risk premia," Journal of Economic Dynamics and Control, Elsevier, vol. 136(C).

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