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The Journal of Portfolio Management

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Article

The Hunt for a Low-Risk Anomaly in the USD Corporate Bond Market

Kwok Yuen Ng and Bruce D. Phelps
The Journal of Portfolio Management Fall 2015, 42 (1) 63-84; DOI: https://doi.org/10.3905/jpm.2015.42.1.063
Kwok Yuen Ng
is director at Barclays Capital Inc. in New York, NY.
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  • For correspondence: mikeng@barclayscapital.com
Bruce D. Phelps
is managing director at Barclays Capital Inc. in New York, NY.
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  • For correspondence: bruce.phelps@barclays.com
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Abstract

Low-risk (i.e., low-beta) equities have been found to have higher risk-adjusted returns than do their high-risk (high-beta) counterparts. This is a low-risk anomaly. Some argue that this phenomenon is ubiquitous in financial markets. Do U.S. corporate bonds show the same phenomenon? To investigate, the authors sort corporate bonds according to various common risk measures and examine whether risk-adjusted returns decline as risk measure, they find conflicting evidence of a low-risk anomaly. Risk measures that are poor at sorting bonds by risk show evidence of an anomaly. However, risk measures that are good at identifying ex ante risk show little evidence to support a low-risk anomaly. In general, the authors find little evidence to support a low-risk anomaly in corporate bonds.

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The Journal of Portfolio Management: 42 (1)
The Journal of Portfolio Management
Vol. 42, Issue 1
Fall 2015
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The Hunt for a Low-Risk Anomaly in the USD Corporate Bond Market
Kwok Yuen Ng, Bruce D. Phelps
The Journal of Portfolio Management Oct 2015, 42 (1) 63-84; DOI: 10.3905/jpm.2015.42.1.063

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The Hunt for a Low-Risk Anomaly in the USD Corporate Bond Market
Kwok Yuen Ng, Bruce D. Phelps
The Journal of Portfolio Management Oct 2015, 42 (1) 63-84; DOI: 10.3905/jpm.2015.42.1.063
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  • Article
    • Abstract
    • A LOW-RISK ANOMALY IN USD CORPORATE BONDS
    • RISK MEASURES
    • RISK VERSUS RETURN: OASD
    • RISK VERSUS RETURN: OAS
    • RISK VERSUS RETURN: DTS
    • RISK VERSUS RETURN: QUALITY
    • CONTROLLING FOR INDUSTRY EFFECTS
    • TWO-WAY RISK FACTOR SORTS
    • BOND/EQUITY MARKET EXPOSURES AND THE LOW-RISK ANOMALY
    • CONCLUSION
    • ONLINE EXHIBITS
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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