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We conjecture that mutual funds with large shares of outstanding bond issues are more inclined to internalize the negative price spillovers of fire sales and thus sell their holdings in those issues, to a lower extent, when they experience redemptions. We provide evidence consistent with this conjecture and further show that ownership concentration limits bonds' exposures to flow-induced fire sales. We exploit variation in negative spillovers arising from the Fed's SMCCF to confirm the economic mechanism and explore our findings' implications for fund performance and fire-sale spillovers to other funds. [ABSTRACT FROM AUTHOR]

On average, stocks have a much higher rate of return than bonds; this has led to research on the equity premium puzzle. Similarly, Bitcoin outperforms stocks; I call this the Bitcoin premium puzzle. I show that standard macroeconomic models predict a low or negative Bitcoin premium. Though Bitcoin is extremely volatile, the model is rejected even when the coefficient of relative risk aversion is above 10. The Bitcoin premium declined after a structural break in late 2013. However, the puzzle is persistent; there has been no downward trend in the premium since. [ABSTRACT FROM AUTHOR]

This paper uncovers that expected excess bond returns display a positive correlation with the slope of the yield curve (i.e. yield spread) in expansions but a negative correlation in recessions. We use a macro-finance term structure model with different market prices of risk in expansions and recessions to show that a very accommodating monetary policy in recessions is a key driver of this switch in return predictability. [ABSTRACT FROM AUTHOR]

We propose a conditional factor model for corporate bond returns with five factors and time‐varying factor loadings. We have three main empirical findings. First, our factor model excels in describing the risks and returns of corporate bonds, improving over previously proposed models in the literature by a large margin. Second, our model recommends a systematic bond investment portfolio whose high out‐of‐sample Sharpe ratio suggests that the credit risk premium is notably larger than previously estimated. Third, we find closer integration between debt and equity markets than found in prior literature. [ABSTRACT FROM AUTHOR]

Purpose: The aim of the article is to examine whether inflation-indexed treasury bonds issued by the Polish Minister of Finance protect investors’ capital against the negative consequences of an increase in the price level. Design/methodology/approach: The condition which has to be met in order to achieve a positive net rate of return in real terms has been established. The historical and current rates of return on investment in the inflation-indexed treasury bonds issued by the Polish Minister of Finance were analysed to check whether they meet this condition. Findings: Own research has shown that in general, operation principle of bonds indexed to inflation should allow the investor to gain protection from negative effects of price changes. Yet, the example of Polish treasury bonds shows that systematic reduction of interest premiums for the subsequent series of issued instruments, changes in the operation principles, negative effect of taxation and materialisation of the defined in article time-shift mismatch risk – in the high-inflation environment results in significantly negative values of the current net rates of return in real terms of the latest series of COI and EDO bonds. This means that these bonds have not protected investors from the negative effects of price increases and loss of purchase power of invested capital. Research limitations/implications: The levels of real rates of return calculated in the way presented in the article, i.e. based on official data of the Statistics Poland, are representative for the entire economy, yet do not have to translate into the same value for the individuals – real rates of return calculated appropriately for the individual investor may vary in both ways and therefore be more or less favourable than presented in the article. Originality/value: The demand for these investment products is increasing, which is surprising in the light of the article’s findings. That may, result from investors’ expectations regarding a decrease in inflation in the coming periods, as well as the fact that, despite the negative profitability in real terms, these instruments can more effectively minimize the real-term losses stemming from inflation than other types of investments of a similar risk level (deposits, savings accounts) what can be furtherly reviewed in the next research. [ABSTRACT FROM AUTHOR]

Purpose: Foreign portfolio investments have continued to play an important role in the world today because investors are more interested in investments that will give them higher returns for their investments. The purpose the study was to establish the effect of foreign portfolio investments and market returns in Kenya. The specific variables studied were foreign equity portfolios, foreign bond portfolios, foreign portfolio of treasury bills and foreign portfolio of exchange traded funds and how they affect the market returns at the NSE20 share index in Kenya. Methodology: The research methodology applied panel regression for inferential findings and Langrage multiplier test done to determine the pooled effect with the aid of STATA 18 software. Secondary data was sourced from the NSE annual reports, CMA bulletins, CBK websites of the respective companies listed in the index for the period between 2013 to 2022. Findings: The study findings indicated a positive and significant relationship of foreign equity portfolios, foreign portfolio of T Bills and foreign portfolio of ETFs with market returns at the NSE20 share index. Conversely, foreign bond portfolio exhibited a negative significant relationship with market returns at the NSE 20 share index. Unique Contribution to Theory, Practice and Policy: The study supported Modern Portfolio Theory(MPT) that suggests that for an investor to maximize returns, an investor will choose from a wide array of portfolios that will suit his needs and risk profiles and Neoclassical Theory of Investment that suggests that investors will take advantage of location differences to profit from arbitrage opportunities and Total portfolio theory that suggests that combination of securities posits a higher performance due to significant diversification benefits linked to a basket of securities. The Modern portfolio theory measuring market return seemed to hold in that it will give an investor an understanding of the most efficient portfolio that will give the largest returns at a given level of risk. The theory was suggested for future related research because it will give an investor a strategy for successful portfolio investments. [ABSTRACT FROM AUTHOR]

This paper investigates the relation between media coverage and offering yield spreads using a comprehensive dataset of 5,338 industrial bonds issued from 1990 to 2011. We find that media coverage is negatively associated with firms' cost of debt. This association is robust to controlling for standard yield determinants, different model specifications, and endogeneity. We identify 4 economic channels through which media coverage influences the cost of debt: Information asymmetry, governance, liquidity, and default risk. Importantly, media coverage has an independent influence beyond the effects of these economic mechanisms and is not a proxy for other firm attributes. [ABSTRACT FROM AUTHOR]

The market demand for the Treasury Inflation‐Protected Securities (TIPS) is rather small. This is puzzling, as we show that an agent, who derives utility from real wealth and dynamically invests into multiple asset classes over a 30‐year horizon, incurs a certainty equivalent loss of 1.6% per annum from not investing in inflation‐indexed bonds. However, if the investor suffers from money illusion, the perceived loss is only 0.5% per annum. Furthermore, the perceived loss is totally negligible for an unsophisticated money‐illusioned investor ignoring the time variation of risk premia. Money illusion causes significant portfolio shifts from inflation‐indexed toward nominal bonds, with little effects on equity allocations, contributing to the low market demand for TIPS. [ABSTRACT FROM AUTHOR]

Copyright of Brazilian Business Law Journal / Administração de Empresas em Revista is the property of Administracao de Empresas em Revista and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The study was conducted with the view to test the impact of cash out flow from the Pakistan Prize Bond market to Gold and Silver markets as a result of the bonds' draw. The data from July 2007 to June 2019 was selected, which included Returns of Gold and Silver Markets. The data was tested with Event Study and AR, AAR & CAR were calculated. The results of AR & CAR did not endorse both the hypotheses on the basis that significant readings were found both in pre and post draw dates, to rule out any impact of cash flow from Prize Bond market into Gold and Silver markets. Whereas, AAR results were insignificant as such, hence fortifying the inference of rejection of both the hypotheses. So, both the hypotheses of having different returns on prize bond draw dates in Gold and Silver markets were not supported. Though the results were incongruent with the hypotheses, yet study outcomes as such are significant enough to propose regulators to contemplate legislations to fetch more funds from this comparatively cheaper source through enhanced documentation, which ultimately would make the economy more compliant. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Financial Politic & Economic Reviews / Finans Politik & Ekonomik Yorumlar is the property of Journal of Financial Politic & Economic Reviews / Finans Politik & Ekomomik Yorumlar and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Research Papers of the Wroclaw University of Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu is the property of Uniwersytet Ekonomiczny we Wroclawiu and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

A new type of retirement bond is proposed called an SM bond. SM bonds are long dated government bonds divisible into two parts: a survivorship (S) part and a mortality (M) part. Each SM bond is associated with a particular age. SM bonds associated with a particular age are only purchasable by (originators) of that age. The SM bond is then splittable into an S and M component. The S part must be retained by the originator, who receives the face value of the bond if he/she is alive at maturity. For originators who die prior to the maturity date, the maturity value of the SM bond is assigned to a mortality pool. The holder of the M part of the bond receives the annual bond coupon, and at maturity a pro rata share of the mortality pool. M bonds are tradable: holders can sell their M bonds to anyone, at any time. It is envisaged different age bonds are issued every year for ages say 30–64 each with say a 35‐year term. The market will be regularly informed about the mortality experience, and the market price of the M bonds will vary over time to reflect that experience. [ABSTRACT FROM AUTHOR]

In this paper, we demonstrate that the funding value adjustments (FVAs) of major dealers are debt overhang costs to their shareholders. To maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case studies include interest‐rate swap FVAs and violations of covered interest parity. Contrary to current valuation practice, FVAs are not themselves components of the market values of the positions being financed. Current dealer practice does, however, align incentives between trading desks and shareholders. We also establish a pecking order for preferred asset financing strategies and provide a new interpretation of the standard debit value adjustment. [ABSTRACT FROM AUTHOR]

It is common to use the average excess return of equities over bonds estimated over long time periods as an expected equity risk premium on the grounds that going back far enough covers most possible economic scenarios. But although this data is useful in guiding the exercise of judgment, it cannot substitute for judgment. Adding more years of data to the near century of Canadian stock and bond returns that inform today's estimate of the equity risk premium will not produce a "random walk" for a simple reason: the historic bond series is the result of a specific historic monetary policy. This is particularly true of and important for the case of Canada, where today's very low current bond yields reflect the emergence of the Canadian dollar as a reserve currency as well as the impact of unconventional monetary policy elsewhere. After analyzing the historic record of the Canadian equity risk premium and noting the need for adjustments when this premium is applied to the current anomalously low Canadian long‐term bond yields, the author reaches the following conclusions: The historic Canadian equity risk premium is approximately 5.0% (based on arithmetic returns), which is slightly lower than the roughly 6.0% value for the U.S.The historic equity risk premium has not been constant because of obvious changes in the Canadian bond market. To some extent, the huge cycle in which bond yields began their increase from the 4.0% level starting in 1957, when markets were liberalized, and then fell back to the 4.0% level in 2007‐2008 completed an adjustment to changes in fiscal versus monetary policy. However, in 2016, average long Canada bond yields dropped to an anomalously low 1.8%, which is below the long‐term inflation target of the Bank of Canada, and have barely recovered since. It is difficult to view this as an equilibrium rate determined by private investors.Of the drop in bond yields, about 0.50% is unique to Government of Canada bonds as they became attractive to sovereign investors as a rare AAA‐rated issuer.Using an indicator variable for the post‐2010 years, a simple regression analysis indicates that current long Canada bond yields should be about 2.75% higher but for the recent changes. And for 2018, this means that the 2.35% average long Canada bond yield should have been about 5.0%. Apart from the impact of higher government deficits, this is consistent with average yields before the 2008 financial crisis.Adding an adjusted 5.0% long Canada bond yield to the historic equity risk premium in Canada of 4.50% gives 9.50% for the cost of the overall equity market or, given the Bank of Canada's target inflation rate of 2.0%, a real equity return of 7.5%, both slightly higher than the long‐run averages. In sum, the conventional practice of adding a historic market risk premium to the current low Canada long bond yields would impart a sharp downward bias to current equity cost estimates; use of this method would not be appropriate until long Canada bond yields increase to at least the 4.0% level. [ABSTRACT FROM AUTHOR]

Researchers who estimate affine term structure models often impose overidentifying restrictions (restrictions on parameters beyond those necessary for identification) for a variety of reasons. While some of those restrictions seem to have minor effects on the extracted factors and some measures of risk premia, such as the forward risk premium, they may have a large impact on other measures of risk premia that is often ignored. In this paper, we analyze how apparently innocuous overidentifying restrictions imposed on affine term structure models can lead to large differences in several measures of risk premiums. [ABSTRACT FROM AUTHOR]

I decompose inflation risk into (i) a component that is correlated with factors that determine investors' preferences and investment opportunities and real returns on real assets with risky cash flows (stocks, corporate bonds, real estate, commodities, etc.), and (ii) a residual inflation risk component. In equilibrium, only the first component earns a risk premium. Therefore, investors should avoid exposure to the residual component. All nominal bonds, including money-market accounts, have constant nominal cash flows, and thus their real returns are equally exposed to residual inflation risk. In contrast, inflation-protected bonds provide a means to avoid cash flow and residual inflation risk. Hence, every investor should put 100% of her wealth in real assets (inflation-protected bonds, stocks, corporate bonds, real estate, commodities, etc.) and finance every long/short position in nominal bonds with an equal amount of other nominal bonds or by borrowing/lending cash; that is, investors should hold a zero-investment portfolio of nominal bonds and cash. This paper was accepted by Neng Wang, finance. [ABSTRACT FROM AUTHOR]

Financial asset risk premia are widely agreed to vary over time. This paper decomposes these risk premia into expected excess returns earned in short windows around the times of macroeconomic news announcements (which mostly come out at 8:30 am) and the expected excess returns that are earned at other times. Using intradaily data, we find that some, but not all, of the time-varying expected excess returns accrue right around macroeconomic announcements. In forecasting six-month cumulative bond returns, there is more predictability in announcement windows than at other times. [ABSTRACT FROM AUTHOR]

In fixed income markets, volatility is unspanned if volatility risk cannot be hedged with bonds. We first show that all affine term structure models with state space RM+ × RN-M can be drift normalized and show when the standard variance normalization can be obtained. Using this normalization, we find conditions for a wide class of affine term structure models to exhibit unspanned stochastic volatility (USV). We show that the USV conditions restrict both the mean reversions of risk factors and the cross section of conditional yield volatilities. The restrictions imply that previously studied affine USV models are unlikely to be able to generate the observed cross section of yield volatilities. However, more general USV models can match the cross section of bond volatilities. [ABSTRACT FROM AUTHOR]

The standard predictive regression assumes expected returns to be perfectly correlated with predictors. In the recently introduced predictive system, imperfect predictors account only for a partial variance in expected returns. However, the out-of-sample benefits of relaxing the assumption of perfect correlation are unclear. We compare the performance of the two models from an investor's perspective. In the Bayesian setup, we allow for various distributions of R2 to account for different degrees of optimism about predictability. We find that relaxing the assumption of perfect predictors does not pay off out-of-sample. Furthermore, extreme optimism or pessimism reduces the performance of both models. [ABSTRACT FROM AUTHOR]

Existing results show that (i) lagged forward rates help predict bond returns and (ii) modern Markovian dynamic term structure models (DTSMs) cannot match the evidence [Cochrane JH, Piazzesi M (2005) Bond risk premia. Amer. Econom. Rev.95(1): 138-160]. We develop the family of conditional mean DTSMs where the dynamics depend on current yields and their history through a moving-average component. Our preferred conditional mean model combines one moving average with the usual three Gaussian risk factors, closely matches the bond risk premium measured from predictive regressions, and provides better forecasts of bond returns. Our framework nests Duffee's models with a small "hidden" factor [Duffee G (2011) Information in (and not in) the term structure. Rev. Financial Stud.24(9):2895-2934], and our results compare favorably with his five-factor model. Conditional mean models are easier to estimate than state-space term structure models based on Kalman estimates of latent factors. [ABSTRACT FROM AUTHOR]

In this paper, we develop a portfolio optimization method to maximize the performance of a fixed income portfolio. To achieve this aim, we define a two-step optimization problem where we firstly manage the immunization risk and then we maximize the portfolio wealth in a reward-risk framework. In the first optimization step, we create funds of bonds with constant immunization measure over time, and we propose an innovative immunization measure for bond portfolio management that leads to a more flexible immunization approach and a better trade-off between reward and risk. In the second optimization step, maximizing two performance measures on these baskets of bonds we obtain portfolio strategies that consider different investors' profiles. An empirical application to the US fixed income market during 2002-2012 period is provided. Applying the portfolio optimization method to different bond classes, we compare the results with an equity index. This ex-post analysis indicates the benefits of the proposed portfolio strategy in outperforming the benchmark and proves that capital flows to safer markets during crisis periods. [ABSTRACT FROM AUTHOR]

Inspired by the preferred habitat theory, we propose parametric interest rate models that split the term structure into segments. The proposed models are compared with successful term structure benchmarks based on out-of-sample forecasting exercises using U.S. Treasury data. We show that segmentation can improve long-horizon term structure forecasts when compared with nonsegmentation. Additionally, introducing cointegration in latent factor dynamics of segmented models makes them particularly strong to forecast short-maturity yields. Better forecasting is justified by the segmented models' ability to accommodate idiosyncratic shocks in the cross-section of yields. [ABSTRACT FROM AUTHOR]

We use Seemingly Unrelated Regressions Estimation methods to assess the link between prices, bond yields and the fiscal behavior. A first equation determines the country-specific cost of government financing via the long-term government bond yield, as a function of budget balance positions. A second equation links the price level to the cost of government financing. Our results for 15 EU countries in the period 1980Q1–2013Q4 show that improvements in the fiscal stance lead to persistent falls in sovereign yields; higher sovereign yields are reflected in upward price movements; improvements in the fiscal stance in recession times lead to short-term decreases in yields and better fiscal stance in expansions induce downward movement in bond yields only after 8 quarters. [ABSTRACT FROM AUTHOR]

The article discusses a new method of estimating liquidity effects in corporate bond yield spreads from an unbalanced group of securities. In this empirical study, liquidity effects and groups of assets sharing similar effects from transaction data of more than five thousand bonds traded in the U.S. were estimated.

All investments are linked to risk and returns. Any investor, who wants to invest in any securities like shares, debenture, bonds etc, must have a good knowledge about investment market. Investing in securities not only requires a good deal of knowledge but also requires analytical skills to deal with it. Investing in financial securities provides a way to the investors to earn a good amount of money. But on the other hand it is full of risks. The challenge with the investors is not limited to choosing the right security but is also linked with the correct selection of the securities from a particular category of securities. The investors instead of investing their savings in a single security should invest in group of securities. This group of securities is called as portfolio. By creating portfolios risks can be reduced without sacrificing the returns. This technique is referred as portfolio management, which help the investors in maximizing their expected returns and provides them with better chances of success in choosing a right investment strategy. [ABSTRACT FROM AUTHOR]

The article discusses challenges in the 2016 corporate defined benefit (DB) pensions plans in the U.S. Topics include changes in accounting rules as to the funded approach of corporate DB plans in the 1980s, the growth of funding ratio (FR) and DB plan assets and liabilities proxies from 1995 - 2014 and the discount rate and long bond yield. Also cited are the risk tolerance of plan sponsors, the Pension Protection Act (PPA) and limited capabilities of liability-driven investment (LDI) assets.

The paper aims at estimating the existence of a trilemma in the Eurozone, i.e., to assess to what extent the net capital flows, the volatility of bond yields and the fiscal stance are strictly linked to each other constraining countries' ability to manage the internal policy goals. The existence of constraints on policy alternatives is estimated for 11 Eurozone countries from 2002 till 2012. The sample is then divided into pre- (2002-2008) and post-crisis (2009-2012) periods. A further division between the PIIGS and the non-PIIGS is then applied. The results show the validity of the trilemma for the whole Euro area and for the whole period but with some distinction between the pre- and post-crisis periods and between the PIIGS and the non-PIIGS countries. The existence of the trilemma underlines the presence of national constraints and suggests, for the future of the Eurozone, to push towards centralized fiscal policy instruments. [ABSTRACT FROM AUTHOR]

Stunningly low global long-term bond yields provide some credence to a secular stagnation view of the world. We present an analytical framework - culminating in a simple scorecard - for assessing the extent to which purported drivers and manifestations of secular stagnation match global economic and financial developments and we compare with a complementary narrative focusing on balance sheet boom and bust. We find some support for each, but think global rates will not stay as low for as long as markets price in., Larry Summers has used the term to refer to a situation where demand and supply for savings deliver very low equilibrium real interest rates. The bulge in middle-aged savers, falling prices of investment goods, and flows of savings 'uphill' from emerging markets may have all led to real rates trending much lower in recent decades., Another version of the story is that slow technical progress depresses demand for borrowing, and pushes down on real rates. This is less compelling, and based more on anecdote than anything else. There are as many reasons to be optimistic, as pessimistic, about the supply side., There are holes in the secular stagnation narrative. Until very recently, G7 savings rates have trended down rather than up, partly because of another decades-long trend of financial innovation. Furthermore, few economists, nor the Fed or the BoE, expect policy rates in the US or UK to stay low for as long as is priced in to markets., A complementary narrative would stress the role of the credit-fuelled mega-boom and subsequent balance sheet blow out and Great Recession, and then the long road to financial repair. This is more consistent with the path of savings rates over recent decades, and the policy response - including QE - can explain much of the rest., We see the two explanations as complementary and reinforcing. In global terms, they appear no better or worse than each other. Comparing across countries, Japan comes closest to resembling secular stagnation, followed by EZ, US and UK, according to our scorecard., We think ultra-low long rates will not be borne out by the future path of short rates, but acknowledge a significant risk they might, for example, if monetary policy remains too tight on average because of zero bound effects on interest rates and limited scope for fiscal accommodation. [ABSTRACT FROM AUTHOR]

We partially identify the average treatment effect of education on earnings and non-parametrically estimate its upper bound for African, Coloured (mixed race) and White males in South Africa. We address endogenous selection into education, cohort effects and endogenous selection into work. Using the September 2007 South African Labour Force Survey, the upper bound estimates are considerably lower than existing parametric point estimates of the return to education. As a lesson, policy makers should focus less on increasing the amount of education obtained by Africans and Coloureds, but rather on measures that can grow the return to existing levels of education. [ABSTRACT FROM AUTHOR]

Financial intermediaries trade frequently in many markets using sophisticated models. Their marginal value of wealth should therefore provide a more informative stochastic discount factor (SDF) than that of a representative consumer. Guided by theory, we use shocks to the leverage of securities broker-dealers to construct an intermediary SDF. Intuitively, deteriorating funding conditions are associated with deleveraging and high marginal value of wealth. Our single-factor model prices size, book-to-market, momentum, and bond portfolios with an R2 of 77% and an average annual pricing error of 1%-performing as well as standard multifactor benchmarks designed to price these assets. [ABSTRACT FROM AUTHOR]

Bond returns are known to exhibit mean reversion, autocorrelation, and other dynamic properties that differentiate them from stock returns. Index-linked bonds bring in further characteristics that complicate the task of modeling returns over time. Such models are essential, however, in strategic portfolio analysis and quantitative risk management. This article shows that the modeling of index-linked bond portfolios can be reduced to statistical modeling of the portfolio's yield to maturity and the underlying index. For these quantities, many well-established models already exist. Using historical data from 12 different markets, the authors show that the two risk factors consistently explain more than 98% of monthly return variations over the past decade, including the recent financial crisis. [ABSTRACT FROM AUTHOR]

Little empirical work has been done on infrastructure as an asset class despite increased allocations by institutional investors. We build a robust factor model of infrastructure returns using US and Australian infrastructure and utility data to test manager claims that infrastructure investments offer benefits via a combination of monopolistic and defensive assets. We find evidence of excess returns and inflation hedging, but not of defensive characteristics. We compare option-based models designed to replicate infrastructure asset returns, and identify the regulatory risk premium. A combination of inflation linked bonds and covered call strategies results in improved defensive and inflation hedging characteristics. [ABSTRACT FROM AUTHOR]