Investor Sentiment and the Cross-section of Corporate Bond Returns

15:30-17:00, Monday, December 7, 2020

Tencent Meeting (Meeting ID: 264 754 078)

Dr. Xu GUO is an assistant professor in Center for Economics, Finance and Management Studies, Hunan University. He obtained his Ph.D. in Economics from University at Buffalo, The State University of New York in 2018. His research interests include financial economics, fixed income analysis, and asset pricing. His research has been published in Journal of Banking and Finance.

This paper constructs an investor sentiment measure at both individual bond and aggregate levels, uncovering the first evidence that investor sentiment has strong cross-sectional predictive power for corporate bond returns. High bond investor sentiment leads to low future returns. A portfolio that longs low sentiment bonds and shorts high sentiment ones generates an average monthly return of 0.91% for high-quality bonds and 1.41% for speculative-grade bonds. The results are robust to controlling for risk factors and bond characteristics. The cross-sectional predictability of bond returns is countercyclical, and the predictability appears to stem from its predictive power for macroeconomic conditions.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3223846

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