This study analyzes 1868–1914 Brussels bond returns, finding strong momentum but weak long-term reversal. No link exists between returns and downside risk, credit quality, or illiquidity, challenging modern bond factor models and the CAPM framework.
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Abstract
What explains the cross-sectional variation in corporate bond returns? This paper uses novel hand-collected data from the Brussels Stock Exchange from January 1868 through July 1914 to examine the cross-section of corporate bond returns out-of-sample. Results over this pre-OTC era generally differ from modern OTC bond market results. Momentum carries significant premia. There is evidence of a weak long-term reversal effect. In contrast, there is no reliable relation between downside risk, credit quality, illiquidity, or book-to-market, and returns. Overall, the out-of-sample evidence reveals a perspective consistent to the argument of a credibility crisis in corporate bond return anomalies.