Corporate Bond Momentum Revisited

Lifang Li

♦ I show that corporate bond momentum is profitable despite recent concerns regarding its sensitivity to data uncertainty. Trimming formation-period positive (negative) outliers systematically weakens (strengthens) momentum profitability for both investment-grade and non-investment-grade bonds. This asymmetry reveals stronger return continuation in winner portfolios than in loser portfolios, consistent with informational heterogeneity within momentum portfolios. Importantly, negative outliers are more likely to reverse, contributing to short-lived price trends in loser portfolios. The robust profits from trimming negative outliers coincide with mitigated momentum crashes that are not explained by bear-market optionality. Instead, the asymmetric effect persists across market states and data choices.

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