Exploiting Uncertainty with Market Timing in Corporate Bond Markets

27.09.2017

Asset Pricing, Empirische Kapitalmarktforschung

Journal of Asset Management, 2018, 19 (2), 79-82.

Keywords

  • Behavioral finance
  • Market efficiency
  • Market timing
  • Predictability
  • Technical analysis

Autoren

Regele, T. Bektic, D.

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 U.S. high yield and U.S. 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 (CAPM), the Carhart 4-factor model and additionally the bond factor model from Asness et al. (2013). Our results remain robust to different moving average formation periods, transaction costs, long-short portfolio construction techniques and alternative definitions of information uncertainty.

Weiterführende Informationen