Are Capital Market Anomalies Common to Equity and Corporate Bond Markets?

We investigate whether corporate bond returns are related to commonly used predictors of stock returns. Using a comprehensive sample of U.S. corporate bonds from 1973 to 2011, we find that size, equity momentum, lagged equity returns, profitability, and idiosyncratic volatility forecast bond returns, but other variables such as accruals, asset growth, SUE, and net issues do not. The economic significance of the predictability is higher for junk bonds than it is for investment-grade bonds. For example, we find monthly returns to long-short portfolio sorted on past-month equity returns to be 0.71% per month for the sample of junk bonds and 0.24% for the sample of investment grade bonds. However, after accounting for trading frictions, only two variables (size and profitability) continue to consistently yield positive average returns