Accounting-Based Anomalies in the Bond Market

Abstract

We examine the relation between future bond returns and 32 accounting-based fundamental variables shown by other researchers to be related to future stock returns. Findings indicate that the frequency of significant returns to trading strategies based on these anomalies is similar in both the bond and stock markets. The magnitude of returns is generally lower with bonds, but the significance and Sharpe ratios of these returns are comparable to those observed with stocks. Although the correlation between bond and stock returns is high, we document several intriguing differences between the returns to bond and stock trading strategies. Surprisingly, the significance of bond returns is generally robust to controlling for the equity returns of the hedge strategies.