Asset Growth Anomaly in Corporate Bond Market: A Decomposition Analysis
2021-11-03 16:01:00
Bonds issued by high asset growth firms are better collaterized thus they are less likely to default. This potentially lowers expected performance of such bonds while it also drives a lower realized performance when investors over-project the collateral value. Separating bond performance to yields and yield change components, we find that collateral improvement reduces bond yields and, more importantly, also causes a higher bond yield increase in the subsequent year, inferring mispricing plays a significant role in bond valuation. Corroborating the mispricing interpretation, we find that a significant portion of bond performance fluctuations over time can be explained by bond yield changes through collateral value channel; the effects are stronger among low-quality than high-quality bonds.