RT Journal Article
SR Electronic
T1 Systematic Pricing and Trading of Municipal Bonds
JF The Journal of Financial Data Science
FD Institutional Investor Journals
SP jfds.2021.1.079
DO 10.3905/jfds.2021.1.079
A1 Petter N. Kolm
A1 Sudarshan Purushothaman
YR 2021
UL https://pm-research.com/content/early/2021/11/24/jfds.2021.1.079.abstract
AB In this article, the authors propose a systematic approach for pricing and trading municipal bonds, leveraging the feature-rich information available at the individual bond level. Based on the proposed pricing framework, they estimate several models using ridge regression and Kalman filtering. In their empirical work, they show that the models compare favorably in pricing accuracy to those available in the literature. In addition, the models can quickly adapt to changing market conditions. Incorporating the pricing models into relative value trading strategies, the authors demonstrate that the resulting portfolios generate significant excess returns and positive alpha relative to the Vanguard Long-Term Tax-Exempt Fund, one of the largest mutual funds in the municipal space.