Thesis Defence - Zeynep Ataol

Thesis Defence – Zeynep Ataol

Asst. Prof. Dr. Emrah Ahi – Advisor

Date: 24.07.2026

Time: 17.00

Location: Özyeğin University Altunizade Campus - Classroom ALT 101

“TRADİNG ON MEAN-REVERSION IN CORPORATE BOND YIELDS: A ROLLING Z-SCORE STRATEGY”

Asst. Prof. Emrah Ahi, Özyeğin University

Asst. Prof. Levent Güntay, Özyeğin University

Asst. Prof.  Kerem Çakırer, Indiana University

Abstract:

This thesis introduces a rolling z-score trading strategy based on the assumption that deviations of a bond’s yield from the fitted yield curve are mean-reverting. A Nelson-Siegel-Svensson (NSS) yield curve is fitted to observed bond yields and used as the theoretical benchmark for measuring yield deviations. The study focuses on investment-grade corporate bonds issued by four US companies: JPMorgan, Amazon, 3M, and Citigroup using TRACE transaction data from January 2015 to June 2025.

For each bond, yield deviations are standardized using a 30 day rolling mean and standard deviation to produce z-scores, which are then used as trading signals.Entry signals are generated when the z-score exceeds 1.5, indicating an undervalued bond, and positions are exited when the absolute value of z-score drops below 0.5.To measure the performance of the z-score trading strategy P&L and Sharpe Ratio of each bond are compared to those of a corresponding buy-and-hold benchmark. Strategy performance, measured by P&L and Sharpe Ratio, is first evaluated without considering transaction costs. The analysis is then extended by introducing a duration-scaled transaction cost of 5 basis points, applied as a bid-ask spread, to assess performance under more realistic trading conditions.

To identify the bond-level characteristics associated with strategy performance, Excess P&L and Excess Sharpe Ratio, measured relative to a buy-and-hold benchmark, are regressed on six standardized regressors: total tenor, time-to-maturity as of each bond's trading start date, average daily trading volume, the standard deviation of the z-score, coupon rate, and average price dispersion. Both univariate and multivariate OLS specifications are estimated for each issuer to assess the individual and joint explanatory power of these regressors. Finally, substantial differences in the drivers of strategy performance are found across issuers.

Keywords: Mean-Reversion, Rolling Z-Score, Nelson-Siegel-Svensson, Corporate Bond Yields, Trading Strategy, Sharpe Ratio, OLS Regression

Bio:     

Zeynep Ataol, having graduated from the Industrial Engineering department at Özyeğin University in 2022, currently works at HSBC Turkey as a Liabilities Product Management Senior Specialist.