Comparing the momentum effect and Novy-Marx’s intermediate horizon effect in Eurozone corporate bonds

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School of Business | Bachelor's thesis

Date

2023

Major/Subject

Mcode

Degree programme

Rahoitus

Language

en

Pages

26

Series

Abstract

I analyze and compare the performance of momentum strategies and Novy-Marx’s intermediate horizon strategies for Eurozone corporate bonds in the period 2013-2022. I show that there is a momentum effect in Eurozone corporate bonds bonds. The momentum strategies produce positive average returns with all holding periods up to 12 months. Holding periods of 1 month and 3 months produce the highest average returns and positive abnormal returns relative to four out of the five systematic risk models considered, with monthly alphas between 0.46 % and 0.87 %. Long-only momentum strategies also produce positive abnormal returns. On the other hand, evidence for the intermediate horizon effect is limited. Only the intermediate horizon strategies with holding periods of 9 and 12 months are profitable, and alphas relative to systematic risk models are mostly insignificant, though results are somewhat better for the long-only strategies.

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Thesis advisor

Kokkonen, Joni

Keywords

fixed income, corporate bond, factor investing, momentum

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