PT  - JOURNAL ARTICLE
AU  - Petter N. Kolm
AU  - Sudarshan Purushothaman
TI  - Systematic Pricing and Trading of Municipal Bonds
AID  - 10.3905/jfds.2021.1.079
DP  - 2022 Jan 31
TA  - The Journal of Financial Data Science
PG  - 87--110
VI  - 4
IP  - 1
4099  - https://pm-research.com/content/4/1/87.short
4100  - https://pm-research.com/content/4/1/87.full
AB  - In this article, the authors propose a systematic approach for pricing and trading municipal bonds that leverages 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.