The rising popularity of index‐replicating Exchange Traded Funds (ETFs) reflects the broader shift toward passive investing. However, the DAX 40 index incorporates an active component through inclusions and deletions, which affect investor returns. While the short‐term “index inclusion effect” around announcement and inclusion dates is well‐documented, we focus on long‐term post‐rebalancing dynamics. We show that newly included stocks between 2010 and 2023 outperformed the DAX 40 by an average of 33.2% during the 12 months before inclusion but underperformed an average of 36.1% over the subsequent 24 months. This mean reversion can be leveraged via a market‐neutral strategy that shorts newly included stocks on the inclusion date and pairs this with a long DAX ETF position. Maintaining the short for 18 months generates a statistically significant alpha relative to a Fama–French six‐factor asset pricing model, even after accounting for transaction costs. Our study reveals a hidden performance drag in the DAX 40 index, with important implications for passive investors in the index.

In this article, we empirically analyze European Collateralized Loan Obligations (CLOs) in the aftermath of the financial crisis. As Regulation introduced the so-called risk retention rule, originally designed to align interests between issuers and investors, we analyze the implications and effects of the risk retention rule on managed cash CLOs (arbitrage deals). Although the market suffered severely during the period after the rule was introduced, an alignment of interests between issuers and investors does not necessarily seem to have been attained. Here, we examine the implications of risk retention on asset pricing and find that CLO manager experience, credit rating and issuance amount are important factors that significantly influence pricing expectations of CLO investors. However, the form in which the CLO manager retains the risk does not seem to play a role.

Factor investing has become very popular during the last decades, especially with respect to equity markets. After extending Fama–French factors to corporate bond markets, recent research more often concentrates on the government bond space and reveals that there is indeed clear empirical evidence for the existence of significant government bond factors. Voices that state the opposite refer to outdated data samples. By the documentation of rather homogeneous recent empirical evidence, this review underlines the attractiveness of more sophisticated investment approaches, which are well established in equity and even in corporate bond markets, to the segment of government bonds.

Factor investing has become very popular during the last decades, especially with respect to equity markets. After extending Fama–French factors to corporate bond markets, recent research more often concentrates on the government bond space and reveals that there is indeed clear empirical evidence for the existence of significant government bond factors. Voices that state the opposite refer to outdated data samples. By the documentation of rather homogeneous recent empirical evidence, this review underlines the attractiveness of more sophisticated investment approaches, which are well established in equity and even in corporate bond markets, to the segment of government bonds.

The explanatory power of size, value, profitability, and investment has been extensively studied for equity markets. Yet, the relevance of these factors in global credit markets is less explored, although equities and bonds should be related according to structural credit risk models. In this article, the authors investigate the impact of the four Fama–French factors in the US and European credit space. Although all factors exhibit economically and statistically significant excess returns in the US high-yield market, the authors find mixed evidence for US and European investment-grade markets. Nevertheless, they show that investable multifactor portfolios outperform the corresponding corporate bond benchmarks on a risk-adjusted basis. Finally, their results highlight the impact of company-level characteristics on the joint return dynamics of equities and corporate bonds.

This article presents an improved equity momentum measure for corporate bonds, using the euro-denominated global investment-grade corporate bond market from 2000 to 2016. The author documents economically meaningful and statistically significant corporate bond return predictability. In contrast to the widely used total equity return, momentum as measured by the residual (idiosyncratic) equity return appears to further enhance risk-adjusted performance of corporate bond investors. Additional support for this conjecture is obtained from tests for various asset pricing factors and transaction costs, as exposure to these risk factors cannot explain this abnormal pattern in returns.