Search

The Treasury, Department of Labor, and IRS announced new rules that: (1) remove an obstacle to the use of tax-favored retirement funds, such as those held in IRAs to purchase "longevity" annuities; (2) make it easier for defined-benefit pension plans to offer participants both annuities and lump-sum payments, rather than an either/or option; (3) clarify that lump-sum 401(k) payments can be transferred to the employer's pension plan (if one exists and permits the transfer) to generate an annuity from the plan; and (4) outline how the spousal protection rules apply to 401(k) plan participants who choose deferred annuities from the plan. [ABSTRACT FROM AUTHOR]

Countercyclical investment strategies of large institutional investors such as insurance companies and pension funds can support financial stability, while procyclical investment behaviour is considered as destabilizing at a macro level. Yet, there is limited understanding of how insurance companies and pension funds invest during market shocks, such as the global financial crisis. Investigating the equity and fixed income portfolios of Dutch non-life insurers, life insurers and pension funds, we find evidence for procyclical behaviour by insurance companies (both life and non-life). For pension funds, we find evidence for countercyclical behaviour during market upturns. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to summarize the January 11, 2018, Fixed Income Market Structure Advisory Committee’s (“FIMSAC”) inaugural meeting held at the US Securities and Exchange Commission (“SEC”).Design/methodology/approach This paper discusses the various topics covered at the inaugural FIMSAC meeting including the exploration of a variety of bond market liquidity issues, including the metrics for analyzing liquidity in the bond market and what these metrics mean for liquidity and dealer intermediation, electronic trading, exchange-traded funds (ETFs), transparency and potential policy responses to increase liquidity and the efficiency of the market.Findings The FIMSAC Chairman proposed the creation of subcommittees addressing modernization, fixed income ETFs and transparency.Originality/value This paper contains information on important topics raised by the fixed income market participants to the SEC and is helpful to all entities participating in the fixed income markets. [ABSTRACT FROM AUTHOR]

The popular press often tends towards sensationalism and, unfortunately, the supposedly more sober financial press is not always better. It is true that many American companies have taken the opportunity to borrow large sums during recent years when interest rates were close to their all‐time lows. This has also led some media commenters to predict a large number of marginally investment grade debt issues (e.g. BBB rated on the S&P rating scale) will be downgraded to less‐than‐investment‐grade status–or to “junk”–as such bonds are commonly known. Veteran fixed income analyst Martin Fridson takes stock of the situation in mid‐2018. While emphasizing that a bear market is inevitable someday, he advises investors not to panic now. Despite the more apocalyptic scenarios offered by financial commentators making dubious connections between today's corporate bond market and possible future high‐yield events, the aggregate numbers do not add up to an end‐of‐civilization‐as‐we‐know‐it story. Some of the numbers mentioned in financial commentary are at least slightly misleading. The present market lacks the sort of structural weaknesses likely to trigger a major bear cycle in fixed income securities, such as overleveraged buyouts and early‐stage telecoms. While there are some questionable issuers in the market, these are isolated cases, rather than representatives of a vast segment of today's high‐yield universe. [ABSTRACT FROM AUTHOR]

As the effective labor market exit observed in most OECD countries is lower than the corresponding official retirement age, the question concerning the driving factors for an early retirement decision arises. This paper incorporates the optimal retirement decision in an optimal consumption and asset allocation problem in order to analyze, among others, the effect of habit forming preferences and diverse leisure preferences for earlier retirement. We compare two possible situations for the retirement phase: (a) the individual is allowed to freely consume and invest; (b) he annuitizes his wealth at retirement and consumes the annuity income. We find that early retirement is optimal if leisure gain through earlier retirement is highly appreciated or the standard of living (habit level) is low. Additionally, our numerical results show that high initial wealth or low labor income lead to early retirement, confirming observations of Fields & Mitchell. [ABSTRACT FROM AUTHOR]

An arbitrage portfolio provides a cash flow that can never be negative at zero cost. We define the weaker concept of a "desirable portfolio" delivering cash flows with negative risk at zero cost. Although these are not completely risk-free investments and subject to the risk measure used, they can provide attractive investment opportunities for investors. We investigate in detail the theoretical aspects of this portfolio selection procedure and the existence of such opportunities in fixed income markets. Then, we present two applications of the theory: one in analyzing market integration problem and the other in gauging the credit quality of defaultable bonds in a portfolio. We also discuss the model calibration and provide some numerical illustrations. [ABSTRACT FROM AUTHOR]

We consider the problem of concurrent portfolio losses in two non-overlapping credit portfolios. In order to explore the full statistical dependence structure of such portfolio losses, we estimate their empirical pairwise copulas. Instead of a Gaussian dependence, we typically find a strong asymmetry in the copulas. Concurrent large portfolio losses are much more likely than small ones. Studying the dependences of these losses as a function of portfolio size, we moreover reveal that not only large portfolios of thousands of contracts, but also medium-sized and small ones with only a few dozens of contracts exhibit notable portfolio loss correlations. Anticipated idiosyncratic effects turn out to be negligible. These are troublesome insights not only for investors in structured fixed-income products, but particularly for the stability of the financial sector. JEL codes: C32, F34, G21, G32, H81. [ABSTRACT FROM AUTHOR]

This paper investigates the presence of long memory in corporate bond and stock indices of six European Union countries from July 1998 to February 2015. We compute the Hurst exponent by means of the DFA method and using a sliding window in order to measure long range dependence. We detect that Hurst exponents behave differently in the stock and bond markets, being smoother in the stock indices than in the bond indices. We verify that the level of informational efficiency is time-varying. Moreover we find an asymmetric impact of the 2008 financial crisis in the fixed income and the stock markets, affecting the former but not the latter. Similar results are obtained using the R/S method. [ABSTRACT FROM AUTHOR]

Nearly a century ago, the U.S. Supreme Court struck down a Kansas compulsory arbitration scheme that fixed wages and hours as to a single employer (but not its competitors), and barred strikes and other forms of concerted action by its workers. Charles Wolff Packing Co. v. Kansas Court of Industrial Relations recognized the right to strike as the constitutional bookend to the Fourteenth Amendment's protections against deprivations of property and liberty of contract without due process of law. Though its holding has never been reversed, some modern-day proponents of private sector compulsory arbitration argue that the New Deal Court "completely repudiated" Wolff in 1937, when it administered its coup de grâce to "economic due process" in West Coast Hotel Co. v. Parrish and upheld the National Labor Relations Act ("NLRA"). In November 2017, the California Supreme Court endorsed this view in Gerawan Farming, Inc. v. Agricultural Labor Relations Board, when it rejected a challenge to a forced contracting scheme similar to the one invalidated in Wolff. This epitaph cannot be reconciled with the history of the Kansas Act or Wolff's significance in the evolution of the doctrinal shifts leading to the New Deal Court's validation of the NLRA. The Labor Board cases reflected, rather than repudiated, one of Wolff's central teachings - workers cannot deal on terms of equality with their employer without the right to engage in collective action. The proceedings before the Court of Industrial Relations, internal documents of the Taft Court, and the national debate precipitated by the Kansas Act over free speech, free labor, and free markets, explain why the unanimous decision in Wolff cannot be dismissed as a "Lochner era" relic. After all, the Kansas Act's compulsory arbitration scheme could not function unless associational rights, property, and liberty due process protections were abridged. Thus, modern-day experiments analogous to the "drastic and all-inclusive" joint compulsion imposed by the Kansas Act suffer from the same, fatal constitutional difficulties. [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]

The article offers information on the Journal of Beta Investment Strategies, focusing on exchange-traded funds (ETFs). Topics covered in the issue include risk diversification in U.S. equity ETFs, the performance of U.S.-listed ETFs focused on European capital markets, REITs using multiple betas, the growth of passive investment instruments in fixed income, a performance review of alternative risk premia and market drawdowns, and a new allocation strategy called Risk "Dis"-Parity.