Daily Academic Alpha: Corporate Loan Momentum Alpha
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.
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Definitions of common statistics used in our analysis are available here (towards the bottom)