Size Factor in Corporate Bonds
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Putting Credit Factor Investing into Practice
Hendrik Kaufmann; Philip Messow
- ?Quoniam Asset Management GmbH
- ?Robeco Quantitative Investments
Strategy in a nutshell
Universe: USD-denominated IG bonds (Financials, Utilities, Industrials) from ICE G0BC index, excluding government and securitized bonds. Sort by issuer’s total outstanding bond size; long top quintile. Equally weighted, monthly rebalanced.
Economic rationale
The size premium arises because smaller issuers tend to have higher returns and/or lower liquidity, which investors are compensated for.
Backtest performance
Annualised return3.50%
Volatility1.67%
Sharpe ratio0.99
Maximum drawdown-7.04%