2025/05/06 by Robbert-Jan ‘t Hoen, Patrick Houweling, Philip Messow · 1 voice
Economics, Econometrics and Finance · Business, Management and Accounting · #Financial Markets and Investment Strategies #Financial Reporting and Valuation Research #Credit Risk and Financial Regulations
paper · doi:10.1080/0015198x.2025.2483183
openalex publication_date 2025/05/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/06/15
Value investing in the corporate bond market aims to identify mispricings by determining to what extent a bond’s credit spread compensates for its risk. By decomposing returns into a risk-taking and a repricing component, we show that existing value factors earn not only from capturing mispricings but also substantially from taking more risk. To better control for risk, we construct a value factor based on an ensemble of machine learning methods. We find that it earns less from risk-taking and more from repricing and is thus closer to a “true” value factor. It also delivers the highest returns after costs.