Corporate Bond Factors: Replication Failures and a New Framework
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Series
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Speaker(s)Jens Dick-Nielsen (Copenhagen Business School, Denmark)
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FieldFinance, Accounting and Finance
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LocationTinbergen Institute Amsterdam, room 1.01
Amsterdam -
Date and time
April 10, 2024
12:45 - 14:00
Abstract
We demonstrate that the literature on corporate bond factors suffers from replication failures, inconsistent methodological choices, and the lack of a common error-free dataset. Going beyond identifying this replication crisis, we create a clean database of corporate bond returns where outliers are analyzed individually and propose a robust factor construction. Using this framework, we show that most, but not all, factors fail to replicate. Further, while traditional factors are constructed from individual bonds, we create representative firm-level bonds, showing which bond signals work at the firm-level. Lastly, we show that a number of equity signals work for corporate bonds. In summary, most factors fail, but so does the CAPM for corporate bonds.