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Outliers and Momentum in the Corporate Bond Market

Author

Listed:
  • Galvani, Valentina

    (University of Alberta, Department of Economics)

  • Li, Lifang

    (Xi’an Jiaotong University)

Abstract

How we filter outliers matters in empirical research. As a demonstration, we analyze how momentum returns respond to different outlier treatments in the corporate bond market TRACE database. We find that momentum profitability depends crucially on return outliers. Specifically, outlier trimming vanishes momentum returns, whereas winsorization yields a robust but conservative assessment of the momentum effect. Price filters show that momentum is generated by low-priced bonds and volume filters reveal that momentum profits during the 2007-2009 crisis were due to the activities of small investors. Lastly, finer partitions of the bond cross-section are shown to deliver superior momentum gains without sacrificing portfolio diversification over bonds and issuers.

Suggested Citation

  • Galvani, Valentina & Li, Lifang, 2022. "Outliers and Momentum in the Corporate Bond Market," Working Papers 2022-3, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2022_003
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    momentum; outliers; winsorization; corporate bonds; TRACE;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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