Daily Academic Alpha: Corporate Loan Momentum Alpha

/Daily Academic Alpha: Corporate Loan Momentum Alpha

Daily Academic Alpha: Corporate Loan Momentum Alpha

By | 2017-08-18T17:07:41+00:00 June 19th, 2015|$IEF|Comments Off on Daily Academic Alpha: Corporate Loan Momentum Alpha

The Cross-Section of Expected Returns in the Secondary Corporate Loan Market

We examine the pricing of characteristics and betas in the cross-section of expected corporate loan returns. Expected loan returns decrease with default beta. Default beta contains information not captured by rating or spread-to-maturity. A three-month formation momentum strategy earns a monthly premium of 122 bps. The effect is robust to various formation and holding periods, cannot be explained by other loan characteristics, and is prominent in loans issued by lowest-rated borrowers. We discover that portfolios including loser loans are riskier, but have lower returns. We find a cross-market correlation between loan and stock momentums. However, each contains additional independent information.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.


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About the Author:

Wes Gray
After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.