Anomaly Identification and Premium Mining: Evidence from Chinese Urban Construction Investment Bonds

This paper identifies the presence of anomalies in Chinese urban construction investment bonds (UCIBs) market using variable ranking portfolio analysis and finds that liquidity anomalies, downside risk anomalies, and historical return anomalies significantly exist. By conducting Fama–MacBeth regressions on the cross-sectional returns of UCIBs and anomalies, we find that only the 6-month momentum in the historical return anomaly can generate statistically significant risk premium which cannot be explained by long-established bond pricing factors, and thus it’s an anomaly for UCIBs. This paper also finds that portfolios constructed based on significant anomalies in the UCIBs market can generate more profits than other models through the out-of-sample cross-sectional return forecasting.