Abstract
AbstractThe low beta anomaly is well documented for equity markets. However, the existence of such a factor in corporate bond markets is less explored. I find that European corporate bonds of firms with a low equity beta have higher risk‐adjusted returns, on average, than European corporate bonds of firms with a high equity beta. The results are economically and statistically significant as low beta credit portfolios improve the Sharpe ratio up to 30%. Moreover, even after accounting for transaction costs and by considering long‐only portfolios, the risk‐adjusted return remains substantial indicating practical implementability of the strategy for corporate bond investors.
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