Related papers: The Corporate Bond Factor Replication Crisis

Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…

While traditional equity factor investing relies heavily on slow-moving fundamental accounting metrics, these models frequently suffer from factor crowding and miss real-time, sentiment-driven market dislocations. This study explores how…

On a periodic basis, publicly traded companies are required to report fundamentals: financial data such as revenue, operating income, debt, among others. These data points provide some insight into the financial health of a company.…

In the standard equilibrium and/or arbitrage pricing framework, the value of any asset is uniquely specified from the belief that only the systematic risks need to be remunerated by the market. Here, we show that, even for arbitrary large…

This paper re-examines the problem of estimating risk premia in linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in…

We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default…

Given the success and almost universal acceptance of the simple linear regression three-factor model, it is interesting to analyze the informational content of the three factors in explaining stock returns when the analysis is allowed to…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…

The Capital Asset Pricing Model (CAPM) is one of the original models in explaining risk-return relationship in the financial market. However, when applying the CAPM into reality, it demonstrates a lot of shortcomings. While improving the…

Crowding is most likely an important factor in the deterioration of strategy performance, the increase of trading costs and the development of systemic risk. We study the imprints of \emph{crowding} on both anonymous market data and a large…

Researchers are more likely to share notable findings. As a result, published findings tend to overstate the magnitude of real-world phenomena. This bias is a natural concern for asset pricing research, which has found hundreds of return…

Large language model (LLM)-based coding agents achieve impressive results on controlled benchmarks yet routinely produce pull requests that real maintainers reject. The root cause is not functional incorrectness but a lack of organicity:…

Sentiment signals derived from sparse news are commonly used in financial analysis and technology monitoring, yet transforming raw article-level observations into reliable temporal series remains a largely unsolved engineering problem.…

We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…

We derive a specific functional form for factor alpha decay -- hyperbolic decay alpha(t) = K/(1+lambda*t) -- from a game-theoretic equilibrium model, and test it against linear and exponential alternatives. Using eight Fama-French factors…

The inflation of Type I error rates is thought to be one of the causes of the replication crisis. Questionable research practices such as p-hacking are thought to inflate Type I error rates above their nominal level, leading to unexpectedly…

Factor investing is ultimately grounded in market logic - the latent mechanism behind observed alpha factors that explains why they should persist across assets and regimes. However, recent factor mining prioritizes factor discovery over…

The role of credit rating agencies has been under severe scrutiny after the subprime crisis. In this paper we explore the relationship between credit ratings and informational efficiency of a sample of thirty nine corporate bonds of US oil…

Financial markets are inherently non-stationary: structural breaks and macroeconomic regime shifts often cause forecasting models to fail when deployed out of distribution (OOD). Conventional multimodal approaches that simply fuse numerical…