Abstract
Bond valuation theory suggests that returns to investors of similarlyrated bonds ought to be the ame. This study reports practice-relevant anomalous investment returns behavior of two types of bonds - Type A and Type B - which have similar cashflow-relevant characteristics. But the average and median returns on Type A bond are significantly different from those of Type B returns. We collected time series data on A and B bonds, all being coupon-paying bonds with similar rating and similar tenor as two matched samples traded in a bond exchange. To ensure the results are extended to different bond sectors, the data set was separated into treasury bonds as risk-free and corporate bonds as risky ones. We further subdivide the data set into short-, medium-, and long-tenor bonds. Since the data straddles the Global Financial Crisis period, we use appropriate econometric method to control the possible effect from the crisis. The test results show significant and systematic differences: treasury bonds of Type A yield lower than treasury bonds of Type B,i.e. the yields of corporate Type A bonds are higher than the yields of Type B bonds. We observe these findings constitute a puzzle, being anomalous to theory.
Original language | English |
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Title of host publication | The Growth of Islamic Finance and Banking |
Subtitle of host publication | Innovation, Governance and Risk Mitigation |
Editors | Hussain Qadri, M Ishaq Bhatti |
Publisher | Taylor and Francis - Balkema |
Chapter | 15 |
Pages | 233-253 |
Number of pages | 21 |
Edition | 1 |
ISBN (Electronic) | 9780429553035 |
ISBN (Print) | 9780367205881 |
Publication status | Published - 18 Sept 2019 |
Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2020 selection and editorial matter, Hussain Mohi-ud-Din Qadri and M. Ishaq Bhatti All rights reserved.
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Business, Management and Accounting(all)