Implementable Corporate Bond Portfolios

65 Pages Posted: 19 Dec 2016 Last revised: 7 Jun 2023

See all articles by Maximilian Bredendiek

Maximilian Bredendiek

Vienna Graduate School of Finance (VGSF)

Giorgio Ottonello

Nova School of Business and Economics

Rossen I. Valkanov

University of California, San Diego (UCSD) - Rady School of Management

Date Written: June 6, 2023

Abstract

We investigate the scope for active investing in corporate bonds by estimating an optimal portfolio using asset characteristics. Our portfolio weights are modeled to account for the severe trading frictions present in OTC bond markets. A portfolio based on maturity, rating, coupon, and size outperforms passive benchmarks and univariate sorts after transaction costs in and out of sample. Further, it predicts macroeconomic activity, suggesting bond characteristics provide hedging against macro-fluctuations. Active funds appear constrained by narrow investment mandates from holding the optimal portfolio. Overall, while active corporate bond portfolios are feasible, institutional constraints might limit their accessibility.

Keywords: Corporate Bonds; Empirical Portfolio Choice; Characteristics

JEL Classification: G11, G12, C58, C13

Suggested Citation

Bredendiek, Maximilian and Ottonello, Giorgio and Valkanov, Rossen, Implementable Corporate Bond Portfolios (June 6, 2023). Available at SSRN: https://ssrn.com/abstract=2886825 or http://dx.doi.org/10.2139/ssrn.2886825

Maximilian Bredendiek

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Building D4, 4th Floor
Vienna, 1020
Austria

HOME PAGE: http://www.vgsf.ac.at

Giorgio Ottonello (Contact Author)

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

HOME PAGE: http://https://sites.google.com/view/gi8nello

Rossen Valkanov

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-0898 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
592
Abstract Views
3,712
Rank
84,269
PlumX Metrics