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The low beta anomaly: A corporate bond investor's perspective
Author(s) -
Bektić Demir
Publication year - 2018
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1002/rfe.1022
Subject(s) - bond , corporate bond , equity (law) , beta (programming language) , transaction cost , sharpe ratio , financial economics , business , bond market , monetary economics , economics , financial system , portfolio , finance , computer science , programming language , political science , law
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 strategy for corporate bond investors.