Pricing Effectiveness on the Russian Corporate Bond Market

Abstract

In this paper, the question of price anomaly’s existence in the ruble bond market is considered. The construction of the profitable investment (trade) strategy on the relatively best and relatively worst corporate bonds that are ranged by the historical return allows to reveal the anomaly. The testing is conducted at the total sample (303 bonds of Russian issuers) and the sub-sample (25 liquid bonds of Russian issuers). The results that include the selection of the trade strategy’s design (the analysis of more than 6 thousand combinations of historical return periods investment periods and the percentiles of the best and worst portfolios) allow to detect the reversal effect (when the profitable strategy includes investing in to former losers who have demonstrated the lowest historical return). The investments in former winners also may be profitable, but the parameters of the strategy design become crucial to reach this effect. The result above justifies the fact that Russian corporate bond market is overestimated, the bond demand is higher that the bond supply that leads to the anomaly in the dynamics of the return, when the investment in losers makes it possible to get profit.