The Low Beta Anomaly: A Corporate Bond Investor’s Perspective

02.05.2017

Asset Pricing, Empirische Kapitalmarktforschung

Review of Financial Economics, 2018, 36(4), 300-306.

Keywords

  • Anomalies
  • Corporate Bonds
  • Factor Investing
  • Low beta
  • Risk Premium

Autoren

Bektic, Dr. Demir

Abstract

The low beta anomaly is well documented for equity markets. However, the existence of such a factor in corporate bond markets is less explored. I find that European corporate bonds of firms with a low equity beta have higher risk-adjusted returns, on average, than European corporate bonds of firms with a high equity beta. The results are economically and statistically significant as low beta credit portfolios improve the Sharpe ratio up to 30%. Moreover, even after accounting for transaction costs and by considering long-only portfolios, the risk-adjusted return remains substantial indicating practical implementability of the stragety for corporate bond investors.

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