Keywords
- Behavioral finance
- Market efficiency
- Market timing
- Predictability
- Technical analysis
Autoren
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.
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