scholarly journals Multidimensional Copula Models for Parallel Development of the Us Bond Market Indices

2017 ◽  
Vol 69 (1) ◽  
pp. 61-73
Author(s):  
Jozef Komorník ◽  
Magdaléna Komorníková ◽  
Tomáš Bacigál ◽  
Cuong Nguyen
Keyword(s):  
Degrees Of Freedom ◽  
Heavy Tails ◽  
Tail Dependence ◽  
Corporate Bond ◽  
Bond Markets ◽  
Copula Models ◽  
Derivative Instruments ◽  
The Us ◽  
Bond Indices ◽  
Investment Grade

Abstract Stock and bond markets co-movements have been studied by many researchers. The object of our investigation is the development of three U.S. investment grade corporate bond indices. We concluded that the optimal 3D as well as partial pairwise 2D models are in the Student class with 2 degrees of freedom (and thus very heavy tails) and exhibit very high values of tail dependence coefficients. Hence the considered bond indices do not represent suitable components of a well-diversified investment portfolio. On the other hand, they could make good candidates for underlying assets of derivative instruments.

Residual Equity Momentum Spillover in Global Corporate Bond Markets

2019 ◽  
Keyword(s):  
Return Predictability ◽  
Bond Market ◽  
Corporate Bond ◽  
Bond Markets ◽  
Corporate Bond Market ◽  
Pricing Factors ◽  
Bond Return ◽  
Abnormal Pattern ◽  
Additional Support ◽  
Investment Grade

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.

US rates rift will fuel financial market volatility

2019 ◽  
Keyword(s):  
Financial Markets ◽  
Bond Markets ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Content Type ◽  
Us Economy ◽  
China Trade ◽  
The Us ◽  
Investment Grade ◽  
Global Growth

Subject Financial markets outlook. Significance The decision of the US Federal Reserve (Fed) on September 18 to lower its main policy rate while not assuring investors that it will continue to loosen monetary policy is exposing divisions within the Federal Open Market Committee (FOMC), and between the Fed and bond markets. The ‘hawkish cut’ came with three dissensions, reflecting the disconnect between the resilient US economy and the deterioration in the global growth outlook. Impacts Cautious investor optimism that a US-China trade truce will be struck is fuelling US equity gains, but a substantial deal seems unlikely. The Brent oil price fell back within days following the drone attacks on Saudi Arabian oil facilities, but more short spikes are possible. Almost one-third of investment-grade government and corporate bonds are negative yielding; those with zero lifetime coupon are riskiest.

Fundamental indexation for bond markets

2014 ◽  
Vol 15 (3) ◽  
pp. 264-274 ◽  
Author(s):  
Marielle de Jong ◽  
Hongwen Wu
Keyword(s):  
Portfolio Management ◽  
Design Methodology ◽  
Bond Markets ◽  
Content Type ◽  
Sovereign Bonds ◽  
The Us ◽  
Price Trends ◽  
Bond Indices ◽  
Empirical Tests ◽  
Fundamental Value

Purpose – The purpose of this paper is to build alternative indices weighing using a measure of fundamental value rather than debt size. The official bond indices built to reflect general price trends are market weighted, meaning that the bonds are weighted by their debt size. The more indebted, the more weight in the index, which mechanically increments the investment risks that are inherent. Those market indices are shown to be return-to-risk inefficient in recent studies compared to indices with alternative weighting schemes. The authors contribute to this growing literature, which mostly focuses on equities, by testing on bonds. Design/methodology/approach – The authors build alternative indices weighing using a measure of fundamental value rather than debt size. The authors have done this for sovereign bonds using gross domestic product (GDP) figures and for corporates taking sales revenues. Findings – The authors find in empirical tests that the fundamental indices build tend to outperform the market-weighted indices. Originality/value – This article builds on two articles by Arnott et al. (2005, 2010), in the Financial Analysts Journal and Journal of Portfolio Management, respectively, and adds value in the sense that – it takes an appreciation-free fundamental measure, – tests on the European as opposed to the US bond markets.

Strategic Asset Allocation: The Role of Corporate Bond Indices?

2011 ◽  
Vol 01 (02) ◽  
pp. 355-422 ◽  
Author(s):  
Antonios Sangvinatsos
Keyword(s):  
Asset Allocation ◽  
Corporate Bond ◽  
High Yield ◽  
Portfolio Performance ◽  
Lower Grade ◽  
Out Of Sample ◽  
Bond Indices ◽  
The Business Cycle ◽  
Liquidity Premia ◽  
Investment Grade

This paper studies dynamic asset allocations across stocks, Treasury bonds, and corporate bond indices. We employ a new model where liquidity plays an important role in forecasting excess returns. We document the significant utility benefits an investor gains by optimally including corporate bond indices in his portfolio. The benefits are bigger for lower-grade bonds. We also find that investment-grade indices are different from high-yield indices in that different risks are priced in these two asset classes. One important difference is that there exist positive "flight-to-liquidity" premia in investment-grade bonds, but we find no such premia in high-yield bonds. We calculate the portfolio behavior and the utility benefits for three types of investors, the "sophisticated", the "average" and the "lazy" investor. We provide practical portfolio advice on investing throughout the business cycle and we study how the total allocations and hedging demands vary with the business conditions. In addition, utilizing our model, we evaluate the significance of the liquidity variable information for the investor. We find that the liquidity information greatly enhances the investor's portfolio performance. Finally, further support in the optimality of the strategies is provided by calculating their in- and out-of-sample realized returns for the last decade.

Normalisation threatens Emerging Europe’s bond markets

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Content Type ◽  
The Us ◽  
Asset Purchases ◽  
Investment Grade

Subject The risks to Emerging Europe’s bond markets from the removal of monetary stimulus. Significance The IMF has warned that the withdrawal of monetary stimulus by the US Federal Reserve (Fed) is likely to reduce capital inflows into emerging market (EM) economies. Emerging Europe is particularly vulnerable, thanks to the additional risks posed by the reduction of asset purchases by the ECB. Corporate bonds are most at risk because of the rapid compression in spreads on sub-investment grade debt, at their lowest levels since the financial crisis. Impacts Hawkish signals from central banks and US tax cuts are taking the benchmark ten-year US Treasury yield to its highest level since mid-March. However, dollar weakness will ease some of the strain on EM currencies and local bonds. With low core euro-area inflation reducing pressure to end QE, the ECB is unlikely to raise interest rates before 2019.

scholarly journals The Impact of the US Dollar and the Euro on Currencies in Europe and Asia

2013 ◽  
Author(s):  
Malgorzata Doman ◽  
Ryszard Doman
Keyword(s):  
Exchange Rates ◽  
Regime Switching ◽  
Tail Dependence ◽  
Markov Regime Switching ◽  
Copula Models ◽  
Opposite Case ◽  
The Us ◽  
Us Dollar ◽  
Area Of Influence ◽  
The Impact

In this paper, we analyze dependencies between the currencies of chosen emerging countries and the major (global) currencies – the euro and the American dollar. The idea is taken from a paper by Eun and Lai proposing a method to verify an opinion that currencies systematically co-move and the pattern of co-movement is significantly driven by the relative influence of the two global currencies. The observation by Eun and Lai is that in the case when a minor currency XYZ is driven by the US dollar, the exchange rates XYZ/EUR and USD/EUR co-move very closely. In the opposite case, i.e. when the XYZ is influenced by the euro, the exchange rates XYZ/USD and EUR/USD show strong interdependence. In our approach, the dynamics of dependencies is modeled by means of 3-regime Markov regime switching copula models, and the considered measures of the strength of the linkages are dynamic Spearman’s rho and tail dependence coefficients. Applying the Markov regime switching copula models allows us to capture temporal changes in the impact of the global currencies on the analyzed minor ones. Our results show that the euro area of influence is widening, and that during the considered period some of the analyzed currencies are releasing from the US dollar impact.

Extending Fama–French Factors to Corporate Bond Markets

2019 ◽  
Keyword(s):  
Explanatory Power ◽  
Corporate Bond ◽  
High Yield ◽  
The Us ◽  
Joint Return ◽  
Investment Grade ◽  
European Investment ◽  
Fama French Factors ◽  
Structural Credit Risk Models ◽  
The Impact

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.

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