IFin Seminar, Cesare Robotti, Warwick Business School - "Noisy prices and return-based anomalies in corporate bonds"
Institute of Finance
Date: 23 November 2023 / 12:25 - 13:40
Speaker: Cesare Robotti, Warwick Business School
Title - "Noisy prices and return-based anomalies in corporate bonds"
Date: November 23, 2023
Time: 12:25 - 13:40
Room: Red Room Executive Center (Main Building West Campus)
USI - West Campus
Abstract:
We argue that the documented large abnormal returns to investors from corporate bond anomalies such as return reversals and momentum mainly stem from ignoring market microstructure noise in transaction-based bond prices and relying on ad hoc return winsorization. To address these issues, we construct bond data that is largely free of microstructure noise and closely mimics industry-grade quote data. We revisit prior findings in the literature and provide conclusive evidence that return-based anomalies, once properly constructed, generate negligible average returns and alphas. Finally, we show that the considered return-based factors (and their underlying signals) are not related to average bond returns.
