scholarly journals Robotizing bond portfolio selection on the Russian debt market on the basis of a modified strategy of riding the yield curve

2021 ◽  
Vol 15 (4) ◽  
pp. 7-21
Author(s):  
Eugene Korobov ◽  
Yulia Semernina ◽  
Alina Usmanova ◽  
Kristina Odinokova

The modern global debt market features historically low average interest rates, convergence of yields on bonds with different maturities, an increase of yield curve inversion emergence frequency and a large-scale trend to automate financial decision making. The researchers’ attention in these fields is mainly focused on designing models that describe the state of the debt market as whole or its individual instruments in particular, as well as on risk management methods. At the same time, the specialized literature offers very few works concerning the topic of computer algorithms for bond portfolio selection based on traditional or advanced investment strategies. The aim of the present research is to create a modification of the existing algorithm of riding the yield curve strategy application, employing, first, average bond yield over the holding period instead of traditional bond yield to maturity; second, a developed algorithm for calculating the market spread on bonds; and, third, alternative risk evaluation indicators (compensation coefficients), which allow us to measure objectively price risk, liquidity risk, transaction costs risk and a general risk. The modification and the development of the algorithm for calculating the market spread were carried out using the direct measurement of the result technique, which entails application of the strategy to the data on bond issues received through the Moscow Exchange API. The selection of financial instruments was conducted in all sectors of the Russian debt market: public bonds, sub-federal and municipal bonds, corporate bonds. The modified algorithm enabled us to get extra yield for each selected bond issue, thereby proving the high effectiveness of the technique compared to the traditional strategy. Software implementation of the algorithm can be integrated into any robotized or semi-robotized stock exchange trading application.

2021 ◽  
Vol 67 (4) ◽  
pp. 294-307
Author(s):  
Ewa Majerowska ◽  
Jacek Bednarz

The interest rate curve is often viewed as the leading indicator of economic prosperity in a broad sense. This paper studies the ability of the slope of the yield curve in the term structure of interest rates to impact the sectoral indices on the Warsaw Stock Exchange, using daily data covering the period from 1 January 2001 to 30 September 2020. The results of the research indicate an ambiguous dependence of the logarithmic rates of return of sub-indices on the change of the interbank interest rate curve. The only sectors showing a clear relationship of this type is energy and pharmaceuticals.


2020 ◽  
Vol 20 (2) ◽  
Author(s):  
Miloš Grujić ◽  
Bojan Baškot

There has been a lot of talks lately about falling interest rates in all markets. The decline in interest rates is also evident in the domestic market. Such information and trends increase caution, especially in the corporate sector, which is not conducive to economic optimism. In support of the black premonitions that have been pointed out recently, the paper also highlights the appearance of “inverse” yield curves on the Banja Luka Stock Exchange. The yield curve represents the relationship between the interest rate (or loan cost) and the time to maturity of a given borrower in a given currency. By definition, there is no single yield curve that describes financing costs for all market participants. There are conventions that everyone adheres to when it comes to choosing instruments and general design principles. The interpretation of the yield curve is very complex because the yield curve takes into account investors’ expectations in terms of interest rates, but also inflation and political cycles because it is reflected as a risk premium for long-term investments. However, the details of the design methodology are characteristic of different institutional investors. The paper describes the methodology for constructing the yield curve of the Republic of Srpska. The range and limitations of using such a yield curve are then stated are also described. The subject of this paper is to create the yield curve in a domestic market and to analyze data from such views. The aim of the paper is to scientifically explain and describe the process of creating a curve for the yield of debt securities issued by the government and to analyze and interpret the data from that curve. The research question is: “Can the yield curve on the Banja Luka Stock Exchange be used behind the presentation of the yield on debt securities over the last decade?” Thus, the paper demonstrates the scope and limitations of this model while respecting the standards and specifics of business in the emerging market. The conclusion is that the yield curve on the Banja Luka Stock Exchange is a theoretical construction rather than an empirically verified fact, in contrast to the yield curve from developed markets, but that it can be used to represent the yield on debt securities and, indirectly, as an auxiliary tool in making investment decisions. Also, the yield curve of debt securities of the Republic of Srpska is a theoretical concept, but it is also noticeable in practice. Moreover, it is a desirable tool for both academia and practitioners and the general public.


2021 ◽  
Vol 19 (01) ◽  
pp. 12-23
Author(s):  
Bohumil Stadnik

Purpose – Nowadays popular algorithmic trading uses many strategies which are algoritmizable and promise profitability. This research assess if it is possible successfully use interest rates sensitivity arbitrage in bond portfolio (also known as convexity arbitrage) in financial praxis. This arbitrage is sparsely described in literature and an assessment about its practical success is missing. Research methodology – Methodology steps: mathematical definition of given arbitrage; construction of sufficient portfolio; backtesting on USD zero-coupon curves. Portfolio of two bonds is constructed (theoretically and practically) to have the same Macaulay duration and price, but a different convexity at certain YTM point. Therefore, being long the first bond while shorting the second (of higher convexity) would result in a market-directional bet for parallel zero-coupon yield curve shifts. Findings – To construct practically the portfolio which is sufficient for the convexity arbitrage could be unrealistic on markets with low liquidity; the presumptions necessary to practically succeed are not fulfilled enough to ensure the arbitrage is profitable. Research limitations – The backtesting is limited to USD market, testing other markets is recommended, but different result is not expected. Practical implications – The research helps practitioners considering this strategy for its implementation to algorithmic trading. Originality/Value – New important results for financial practitioners; states that practical and profitable utilization of convexity arbitrage is unrealizable and save costs during implementation of the strategy.


2018 ◽  
Vol 15 (1) ◽  
pp. 18-32
Author(s):  
Laras Nurul Listiawati ◽  
V. Santi Paramita

This study aims to determine the effect of interest rates, inflation, debt to equity ratio and firm size on bond yields at companies listed on the Indonesia Stock Exchange. Previous research shows different results. Therefore, it is necessary to do a research to re-examine the influence of these four variables on bond yield. The population in this study are all corporate bonds listed and traded on Indonesia Stock Exchange in period of 2010 to 2016, amounting to 584 bonds. Based on purposive sampling criteria 88 bonds were sampled. The research hypothesis was tested using multiple regression. This study concludes that interest rate has a positive effect on bond yield, debt to equity ratio negatively affect bond yield, while inflation and firm size have no effect on bond yield.


2019 ◽  
Vol 9 (1) ◽  
Author(s):  
Ayu Mega ◽  
Widayat Widayat

This study aims to determine the effect of interest rates, bond rate, and the maturity time of bond yields on property and real estate companies listed on the Indonesia Stock Exchange in 2013-2018. This type of research is in the form of associative and using a quantitative approach. The research population is property and real estate companies and sampling technique using purposive sampling. Based on the current criteria obtained, 13 companies and 38 bonds that became the research sample. Data analysis technique using Multiple Linear Regression Analysis. The partial test result shows that the variable interest rate and maturity time is positive and significant, while the variable rating bond is negative and significant. The simultaneous test result indicates that the variable of interest rate, bond rating, and maturity time influence simultaneously to the bond yield.


2019 ◽  
Vol 8 (2) ◽  
pp. 244-252
Author(s):  
Tri Meida Nurcahyanti ◽  
Tatik Widiharih ◽  
Budi Warsito

Bond is a medium-long term loan agreement that can be handed over, it contains a promise from the issuer to pay rewards in the form of interest on a particular period and paying off the principal debt on the time that has been appointed to the bond buyer. A method to find out the relationship between yield and time to maturity for a type of bond at any given time is illustrated through the yield curve. One of the methods for estimating yield curve is B-spline. The data that used to estimate the yield curve with B-spline model are sourced from Indonesia Stock Exchange, namely Government Bond Trading Report with code FR (Fixed Rate). The data periods used are 9, 16, and 23 November 2018. The best model for estimating the yield curve at any period of the data is linear B-spline model with 6 knots but the knot position is different for every data period. Based on the calculation of MAPE, the ability of the model to predict is very good. Investment with maximum profit based on the estimation of yield curve using B-spline linear model with 6 knot is FR0071.Keywords: bond, yield, yield curve, Government Bond, B-spline


Subject Outlook for US financial markets. Significance Since October, the benchmark S&P 500 index has fallen by more than 5% as part of a broad-based sell-off of financial assets. Indications that the ‘America First’ inspired trade agenda is unravelling include concerns that rising US interest rates will dampen economic growth and corporate earnings, and a rout in technology stocks, the high-flying sector that powered the US equity rally from mid-May to late-September when US stocks significantly outperformed their European, Japanese and Emerging Market (EM) peers. Impacts Lower oil prices will extert downward pressure on inflation. Efforts by China and the United States to wean themselves off mutual dependence in tech could escalate, curbing the US tech stocks bull run. The first inversion of the bond yield curve since 2007, will fuel speculation that the Fed will slow monetary tightening. EM equities will remain volatile, despite have risen by nearly 9% since October 29, partly reversing their 2018 sell-off.


2020 ◽  
Vol 26 (12) ◽  
pp. 2858-2878
Author(s):  
M.I. Emets

Subject. The article addresses the green bond pricing as compared to bonds other than green ones. Objectives. The aims are to determine how the fact that a bond is identified as a green one, the issue amount, and the availability of third-party verification, influence the yield to maturity; to make recommendations on effective green bond pricing. Methods. The study employs econometric testing of hypotheses, using the multiple linear regression. The sample includes 318 green and 1695 conventional bonds. Results. Green bonds have a lower yield to maturity in comparison with conventional bonds. The yield to maturity of green bonds with third-party verification is lower, as contrasted with green bonds without verification. Conclusions. The next step in the green bond market development is creating a benchmark yield curve for sovereign green bonds, with parallel issuance of conventional, non-green bonds. The yield curve is crucial for effective bond pricing. Two yield curves, i.e. for green and non-green bonds, will enable investors to estimate the fair price on issuance, as well as to define, if there is a difference in pricing.


Author(s):  
Saefudin Saefudin ◽  
Tri Gunarsih

Underpricing is a phenomenon that still occurs in the Indonesian capital market, where the offering price of shares in the primary market is lower than the opening price or closing price on the first day on the secondary market. This study aims to examine the effect of Return On Assets (ROA), Debt to Equity Ratio (DER), company size, underwriter reputation, age, and interest rates on the underpricing of shares in companies’s Initial Public Offering (IPO) listing on the Indonesia Stock Exchange (BEI) in 2009 to 2017. The population in this study are companies that conduct IPOs on the BEI period 2009 to 2017. The sample selection in this study uses a purposive sampling method, based on certain criteria. The sample in this study were 183 underpricing companies from 205 companies conducting IPO in the period 2009 to 2017. The data used in this study used secondary data. The multiple regression analysis was implemented in this study. The results showed that DER, company size, and underwriter reputation did not significantly influence underpricing. While ROA, age and interest rates have a significant negative effect on underpricing. In this study, investors consider ROA, age, interest rates compared to DER, company size, and the reputation of the underwriter to invest in companies that make an IPO.Keywords: Underpricing, Initial Public Offering, and Indonesian Stock Exchange.


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