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Author: Nils Friewald Publisher: ISBN: Category : Languages : en Pages : 44
Book Description
Inventory models of dealership markets imply that intermediaries reduce their exposure to inventory risk by offering prices different from fundamental values. Therefore, inventory levels should affect asset prices and thus returns. We explore the cross-sectional relation between US corporate bond inventories and returns. Our findings provide strong support for the asset pricing implication of inventory models, that is, the risk-adjusted return of a high-minus-low inventory-sorted portfolio is 21 basis points per week. Furthermore, we examine several drivers of the inventory risk premium; for example, we emphasize the importance of inventory risk sharing in pricing bonds.
Author: Nils Friewald Publisher: ISBN: Category : Languages : en Pages : 44
Book Description
Inventory models of dealership markets imply that intermediaries reduce their exposure to inventory risk by offering prices different from fundamental values. Therefore, inventory levels should affect asset prices and thus returns. We explore the cross-sectional relation between US corporate bond inventories and returns. Our findings provide strong support for the asset pricing implication of inventory models, that is, the risk-adjusted return of a high-minus-low inventory-sorted portfolio is 21 basis points per week. Furthermore, we examine several drivers of the inventory risk premium; for example, we emphasize the importance of inventory risk sharing in pricing bonds.
Author: Kee H. Chung Publisher: ISBN: Category : Languages : en Pages : 45
Book Description
This paper examines the pricing of volatility risk and idiosyncratic volatility in the cross-section of corporate bond returns for the period of 1994-2016. Results show that bonds with high volatility betas have low expected returns and this negative relation appears in all segments of corporate bonds. Further, bonds with high idiosyncratic bond (stock) volatility have high (low) expected returns, and this relation strengthens as ratings decrease. Conventional risk factors and bond/issuer characteristics cannot account for these cross-sectional relations. There is evidence that the effect of idiosyncratic stock volatility on expected bond returns works through the channel of contemporaneous stock returns.
Author: Söhnke M. Bartram Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We study the role played by "bond book-to-market" ratios in U.S. corporate bond pricing. Controlling for numerous risk factors tied to default and priced asset risk, including yield-to-maturity, we find that the ratio of a corporate bond's book value to its market price strongly predicts the bond's future return. The quintile of bonds with the highest book-to-market ratios outperforms the quintile with the lowest ratios by more than 3% per year, other things equal. Additional evidence on signal delay, scope of signal efficacy, and factor risk rejects the thesis that the corporate bond market is perfectly informationally efficient, although significant positive alpha spreads are erased by transaction costs.
Author: William R. Gebhardt Publisher: ISBN: Category : Languages : en Pages : 43
Book Description
This paper finds that default betas are significantly related to the cross-section of average bond returns even after controlling for characteristics such as duration, ratings, and yield-to-maturity. Among characteristics, only yield-to-maturity is significantly related to average bond returns after controlling for default and term betas. The default and term factors are able to price the returns of beta-sorted portfolios better than they do the returns of yield-sorted portfolios. The magnitude of the ex ante Sharpe ratio generated by yield-sorted portfolios suggests non-risk based explanations. Overall, given the elusive nature of systematic risk in empirical asset pricing, the central finding of our paper is that systematic risk matters for corporate bonds.
Author: Antje Berndt Publisher: ISBN: Category : Languages : en Pages : 75
Book Description
We propose an equilibrium model of over-the-counter corporate bond trading with short selling, asymmetric information and dealer inventory costs. The model predicts that higher inventory costs impose implicit short-sale constraints on informed investors and are thus associated with lower price efficiency. We construct bond-level proxies for inventory costs and provide empirical evidence in support of the model's prediction. Our findings suggest that tighter post-GFC regulation may have had unintended consequences for corporate bond market quality.
Author: Gi H. Kim Publisher: ISBN: Category : Languages : en Pages : 42
Book Description
We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the existence of CDS. We show that a basis factor, constructed as the return differential between LOW and HIGH quintile basis portfolios, is a superior empirical proxy that captures the new risks. In the cross section of investment grade bond returns, the basis factor carries an annual risk premium of about 3% in normal periods.
Author: Himanshu Verma Publisher: ISBN: Category : Languages : en Pages : 19
Book Description
We examine momentum and reversal anomalies in corporate bond returns at the firm-level employing a novel dataset, SoKat Credit, comprising bonds of 323 of the largest and liquid companies over the period from 2002 to 2020. Our study documents significant short-term reversal in the cross-sectional of corporate bond returns concentrated at the one week interval with annualized returns on the zero investment long-short portfolio of 9.9%. We also document company-level momentum spillover effect into corporate bond returns when sorting on past equity returns, that is, our “bond-stock” strategy, which delivers annualized return of 5.0% is statistically significant and robust baring the usual suspects of caveats.
Author: Oliver Randall Publisher: ISBN: Category : Languages : en Pages : 61
Book Description
I show that dealer behavior in the US corporate bond market is consistent with dealers bearing a time-varying cost of holding inventory. Liquidity is worse when inventory costs increase, especially for bonds with lower credit ratings, customers with lower bargaining power, and larger trades. When inventory costs increase, dealers sell more high yield bonds, but sell less investment grade, suggesting a flight to quality. Inventory costs don't affect dealers' trades immediately unwound in the inter-dealer market, but do affect the rate at which these trades occur, as dealers' willingness and ability to risk-share in the inter-dealer market change.
Author: United States. Congress. House. Committee on Financial Services. Subcommittee on Financial Institutions and Consumer Credit Publisher: ISBN: Category : Administrative regulation drafting Languages : en Pages : 484
Author: Nils Friewald
Author: Nils Friewald
Author: Kee H. Chung
Author: Söhnke M. Bartram
Author: William R. Gebhardt
Author: Antje Berndt
Author: Gi H. Kim
Author: Himanshu Verma
Author: Oliver Randall
Author: 
Author: United States. Congress. House. Committee on Financial Services. Subcommittee on Financial Institutions and Consumer Credit