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This paper values fixed-income (discrete- and continuous-time) European Asian and Australian options. We assume that the term structure of interest rates is modelled by the specification proposed in Moreno et al. (Econ Model 72:140–150, 2018, https://doi.org/10.1016/j.econmod.2018.01.015). We obtain closed-form expressions for the premiums of geometric average options and, for arithmetic average options, premiums are computed by numerical methods. We also perform a sensitivity analysis with respect to different parameters for both (geometric and arithmetic) options. [ABSTRACT FROM AUTHOR]

Investment mandates of fixed income funds constrain managers' portfolio decisions, often employing credit ratings to classify asset risk. We categorize U.S. and European fixed income funds' mandates using textual analysis and measure the use of ratings. Over the past two decades, despite the weaknesses of ratings revealed in the global financial crisis, ratings use has increased significantly. Since 2010, the fraction of funds not using ratings in any way has fallen by almost half in both the United States and Europe. By 2020, 94% of U.S. funds and 65% of European funds used ratings. These patterns fit agency-based models of investment mandates and point to a lack of practically useful alternatives. This paper was accepted by Tomasz Piskorski, finance. Funding: This work was supported by the Nasdaq Nordic Foundation. Supplemental Material: The data files and e-companion are available at https://doi.org/10.1287/mnsc.2023.4848. [ABSTRACT FROM AUTHOR]

Holding volatility as part of an institutional portfolio is often found not to benefit the overall characteristics of the resulting portfolio. This applies to both simple buy and hold but also to short-selling VIX futures to harvest the volatility risk premium. We show that the latter generates positive returns but is unlikely to benefit an existing equity portfolio due to the high correlation with the returns of the S&P 500. Instead, we propose to harvest the volatility risk premium using the full term structure of the VIX in a robust Markowitz (J Financ 7(1):77–91, 1952. https://doi.org/10.2307/2975974)-framework based on Pedersen et al. (Financ Anal J 77(2):124–151, 2021. https://doi.org/10.1080/0015198X.2020.1854543). We show that VIX carry forecasts have predictive power for the futures returns and consequently use these as a market return expectations. In a number of out-of-sample tests, we find that such ex ante Sharpe-optimal portfolios not only yield statistically significant positive performances but also add significant Alpha over typical equity and fixed income factor returns. Several robustness tests confirm that these findings are insensitive to the specific parameter choices. Overall, we conclude that the volatility risk premium can be harvested profitably with a simple dynamic framework using the full term structure of VIX futures—both stand-alone and in the context of an existing institutional portfolio. [ABSTRACT FROM AUTHOR]

Most empirical studies show that three factors are sufficient to explain all the relevant uncertainties inherent in option prices. In this paper, we consider a three-factor CIR model exhibiting unspanned stochastic volatility (USV), which means that it is impossible to fully hedge volatility risk with portfolios of bonds or swaps. The incompleteness of bond markets is necessary for the existence of USV. Restrictions on the model parameters are needed for incompleteness. We provide necessary and sufficient conditions for a three-factor CIR model that generates incomplete bond markets. Bond prices are exponential affine functions of only the two term-structure factors, independent of the unspanned factor. With our three-factor CIR model exhibiting USV, we derive the dynamic form of bond futures prices. By introducing the exponential solution of a transform and using the Fourier inversion theorem, we obtain a closed-form solution for the European zero-coupon option prices. The pricing method is efficient for taking into account the existence of unspanned stochastic volatility. [ABSTRACT FROM AUTHOR]

The Student Managed Fund (SMF) at the University of Connecticut (UConn) School of Business was founded in 2000. In this article, we study the recent growth of and challenges encountered by UConn's SMF program. Specific areas studied include: 1) implementation of an ESG framework, 2) introduction of a new fund that incorporated hedging with derivatives in addition to equity and fixed income investing, 3) other logistical matters in the operations of the fund such as student recruitment, student participation and compliance, maintaining a balance between equities and fixed income, and gender diversity. We explore solutions including those suggested in the recent literature. Our findings might be helpful to other SMIFs. [ABSTRACT FROM AUTHOR]

This study provides evidence on whether predictive information can help to profitably allocate a cross-asset factor portfolio, covering well-known factors over the asset classes of equity, commodities, fixed income, and foreign exchange. The authors investigate the performance of a meaningful set of predictors, which they broadly divide into macro and market indicators. Their analysis indicates that tilting a global factor portfolio based on inflation and business-cycle signals can enhance performance, whereas most of the analyzed predictors do not notably improve decision making or are even counterproductive. The results are validated over an extensive out-of-sample period and under practical considerations, while surviving conservative transaction cost assumptions. In sum, the authors advise exercising skepticism when assessing outperformance based on return forecasting, given the challenges of selecting and adhering to the right variables beforehand. Nevertheless, their results suggest potential benefits of conditioning an investor's factor allocation on fundamental macroeconomic information and motivate future research to explore this link. [ABSTRACT FROM AUTHOR]

Convertible bonds are fixed-income securities that have embedded options to convert into equities. This optionality offers investors better risk-adjusted returns than traditional bonds or equities. However, due to limited liquidity, investing in convertible bonds is challenging for many investors. In this article, the authors propose a convertible-bond index replication strategy using stocks and a high-yield exchange-traded fund (ETF). Their back-test shows that a replication portfolio consisting of stocks and a high-yield ETF reasonably tracks the risk-adjusted return characteristics of a convertible bond index. [ABSTRACT FROM AUTHOR]

In this future directions in finance article, I discuss several topics that I believe are promising areas for research. The topics fall into three areas: the microstructure of fixed income markets, equity market microstructure, and short selling. Both theoretical and empirical work is needed in these areas. [ABSTRACT FROM AUTHOR]

Lesley Johnson is the athletic director at Provincial University where a generous donation has recently been made to the Athletic Department to create an endowment to fund scholarships—called Athletic Financial Awards—at Provincial University. Lesley is tasked with devising the best plan to utilize these funds within the risk parameters established by Provincial University's Board of Governors. Here, different investments are contemplated; however, with the guidance of Kelly Simpson, from Capital and Revenue Consultants, financial analyses to estimate returns, pricing, and risk factors for various fixed income options are completed. [ABSTRACT FROM AUTHOR]

This article examines the use of fixed income factors in investment strategies. The authors analyze the performance of factors such as carry, quality, value, and momentum in different fixed income asset classes. They find that these factors can predict returns and provide diversification benefits. The authors present case studies of the Norwegian Government Pension Fund Global and a group of US high yield funds to illustrate the impact of factor exposures on active fixed income fund performance. They conclude that factor investing can enhance returns and diversification in fixed income portfolios. [Extracted from the article]

The article focuses on the Tagungsbericht zum UmsatzsteuerForum Praxis 2023 event hosted by the Mercedes-Benz AG. Topics discussed at the event include issues related to digitalization of value-added tax, the transformation in the automotive industry with a focus on electromobility and digital business models, and challenges in tax compliance management systems (Tax CMS).

Copyright of Die Unternehmensbesteuerung (Ubg) is the property of De Gruyter 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.)

Empirical studies on ESG-related topics have focused mainly on equity markets. This article focuses on the financial materiality of ESG risk assessment for sovereign debt instruments. The authors first review the existing literature on sovereign ESG and transmission channels to sovereign risk. Using an econometric framework, they then examine the empirical correlation between ESG risk and credit risk for 70 sovereign issuers. They use sovereign ESG risk scores from FTSE Russell/Beyond Ratings as a proxy for ESG risk, and five-year credit default swap spreads as a proxy for sovereign credit risk. By controlling for economic factors, the authors find that sovereign ESG risk assessments are correlated with sovereign credit risk, providing information on the financial materiality of sovereign ESG risks, especially for high-yield emerging markets. They then calculate the implied sovereign five-year CDS spread curves, based on sovereign ESG risk scores, to illustrate those results. The authors also examine more-granular results for specific income groups and index universes. [ABSTRACT FROM AUTHOR]

Purpose: The "experience is the best teacher" model assumes that acquiring expertise in a given domain reduces biases. Research in expert knowledge in investment decisions has shown better ability to produce improved results in asset selection or portfolio returns. Universities created student-managed investment funds (SMIFs) to train students in portfolio management as fiduciaries. However, analyses of the effectiveness of the SMIF as a medium for expert knowledge transfer have not been done. Design/methodology/approach: The authors' analyze an SMIF's structure against established models of expert knowledge transfer, using the voting patterns of the trustees of the fund from the recorded minutes of the fund's meetings to show the fund's structure and outcomes demonstrate effective knowledge transfer. Voter consensus between faculty and student trustees is one proxy the authors use for knowledge transfer. Findings: Consensus between faculty and students was uniformly high across all recommendations. Chi-square tests were employed to test for independence between approval of recommendation and level of consensus, showing dependence in most cases. Analysis of sale returns over the 12-year sample period showed significantly better performance of asset sales over relevant benchmarks for both equity and fixed income portfolios. Originality/value: Most analyses of SMIF structure concentrate on well-known issues with things like student turnover, summers or other structural issues. Performance is evaluated based on returns. This study looks at the SMIF as an expert knowledge transfer medium and examines expert/novice decision approval in terms of knowledge transfer. [ABSTRACT FROM AUTHOR]

Direct indexing provides an alternative to index fund vehicles that offers more choice, greater flexibility, and tax advantages well beyond the scope of commingled investments. By directly holding index constituents, investors can achieve greater flexibility through environment, social, and governance (ESG) screens to filter the investable universe and generate tax advantages through tax-loss harvesting. These advantages are available in both equities and fixed income. However, fixed income offers additional dimensions of personalization such as duration and tax optimization between taxable and tax-free securities. Bond ladders are an effective way to track the overall bond market because of their unique reinvestment structure, and those reinvestments can be optimized by rules-based allocation decisions. [ABSTRACT FROM AUTHOR]

This article uses administrative tax data to estimate top wealth in the United States. We assemble new data that link people to their sources of capital income and develop new methods to estimate the degree of return heterogeneity within asset classes. Disaggregated fixed-income data reveal that rich individuals earn much more of their interest income in higher-yielding forms and have much greater exposure to credit risk. Consequently, in recent years, the interest rate on fixed income at the top is approximately 3.5 times higher than the average. We value the population of U.S. firms using firm-level characteristics and apportion this wealth using firm-owner links. We combine this new data on fixed income and pass-through business returns with refined estimates of C-corporation equity, housing, and pension wealth to deliver new capitalized wealth estimates that build upon the methods of Saez and Zucman (2016a). From 1989 to 2016, the top 1%, 0.1%, and 0.01% wealth shares increased by 6.6, 4.6, and 2.9 percentage points, respectively, to 33.7%, 15.7%, and 7.1%. Overall, although we estimate a large degree of return heterogeneity, accounting for this heterogeneity does not change the fundamental story for top wealth shares and their growth—wealth inequality is high and has risen substantially over recent decades. [ABSTRACT FROM AUTHOR]

Copyright of Revista Pauta Geral is the property of Revista Pauta Geral 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 problem of intertemporal choice arises when outcomes are received in different moments of time. This paper presents an axiomatic model of intertemporal choice when consumption in the previous moment of time contributes to utility evaluation of consumption in the current moment. This model generalizes classic discounted utility theory (also known as constant or exponential discounting) in two ways. First, in every moment of time, a decision maker derives utility not only from current consumption but also from "residual" consumption in the previous moment of time. Second, these utilities are discounted with weights that are essentially a quasi-hyperbolic discounting function. The paper presents an application of the proposed model to the problem of optimal consumption and savings given a fixed income (wealth). When a decision maker derives satisfaction from both instantaneous consumption as well as a share of consumption in the previous moment of time, optimal consumption path is cyclic—periods of relatively high consumption are interchanged with periods of relatively low consumption. These cycles decay over time. Asymptotically, the consumption path exhibits conventional properties (constant, increasing or decreasing over time when a gross interest rate multiplied by discount factor is correspondingly equal to, greater than, or less than one). [ABSTRACT FROM AUTHOR]

Most jurisdictions grant differentiated and more beneficial treatment – usually in the form of early retirement, and commonly under special pension schemes – to workers in arduous or hazardous jobs. Several justifications for such treatment have been advanced, including i) compensating the worker for the hardship, ii) protecting the worker from the hazard, and iii) realizing the principle of equality in the distribution of costs and benefits in the social security system. This article analyses these functions from a socioeconomic perspective and explains how early retirement for workers in arduous and hazardous jobs is necessary to ensure equality by treating "unequals unequally", and in proportion to their inequality. Moreover, this article presents a precise formula to calculate when a worker should be allowed to retire, so that workers in occupational domains with a shorter life expectancy do not systematically enjoy lower expected benefits from the pension system while having contributed the same amount. Implications for the design and desirability of special pension benefits are discussed. [ABSTRACT FROM AUTHOR]

Affine term structure models are widely used for studying the relationship between yields on assets of different maturities. However, it can be a helpful tool for the construction of fixed-income portfolios. The monitoring of these bond portfolios is of great importance for the investor. The purpose of this work is twofold. Firstly, we construct and optimize fixed-income portfolios using Markowitz's portfolio approach to a multifactor Gaussian affine term structure model (ATSM) under no-arbitrage conditions estimated with the minimum chi square estimation method. The fixed-income portfolios based on the term structure model are compared with some benchmark portfolio strategies, and our findings show that our proposed approach performs well under the risk–return tradeoff. Secondly, we propose control chart procedures for monitoring the optimal weights of government bond portfolios in order to detect possible changes. The results indicate that control chart procedures can be useful in the detection of changes in the optimal asset allocation of fixed income portfolios. [ABSTRACT FROM AUTHOR]

In this article we empirically study the investment behavior, portfolio distribution and returns of the pension investors in Türkiye with an extraordinarily high-quality administrative data in December 2019. To analyze the variation in investors’ portfolios of defined contribution pension plans, we calculate the share of wealth invested in the equity, fixed income and default funds. Results show that there is substantial heterogeneity in the level of pension wealth invested in equity funds, fixed income securities funds and default option funds. However, portfolio returns do not significantly vary among investors. Also, the distribution of pension wealth in defined contribution pension plans are extremely unequal. The portfolio weights of equity funds are very small. Although the distribution is slightly better for fixed income funds, almost the same pattern is for these portfolios. On the contrary, the portfolio weights of default funds are very high compared to equity and fixed income funds. This shows that stickiness to the default option is widespread for Turkish pension investors. [ABSTRACT FROM AUTHOR]

Research has found strong links between past credit booms and adverse outcomes for macroeconomic aggregates like output and investment. However, are price impacts also seen more widely in broad asset classes such as equity and fixed-income markets? We document such a robust and significant connection using a large sample of historical data for many advanced countries since 1870. Credit boom periods with a high "leverage factor" tend to be predictably followed by unusually low returns to risky equities, in absolute terms and relative to a safe fixed-income portfolio. Fixed income is a safe haven at these times and has slightly higher than normal returns. We show these properties hold in-sample and out-of-sample. Return predictability because of the leverage factor is distinct from that because of momentum (lagged return) and value (cashflow relative to price). Trading strategies built on the leverage factor accrue meaningful excess profits out-of-sample. This paper was accepted by Victoria Ivashina, finance. [ABSTRACT FROM AUTHOR]

Investment organizations around the globe have increasingly been committed to integrating ESG considerations into their processes. Capital allocation to ESG fixed-income funds keeps growing both in absolute terms and relative to non-ESG fixed-income funds. The answer to the question whether incorporating ESG information into analysis and applying ESG screens leads to similar, better, or worse investment performance is of interest to many investors. To help shed light on this question, we test whether ESG fixed-income funds generate out- or underperformance after controlling for systematic fixed-income factors. We apply a consistent methodology across a broad sample of ESG fixed-income funds that includes European, US, and Global funds. Most funds in our sample did not produce statistically significant positive or negative gross alphas. Performance of ESG fixed-income funds appears to be mainly driven by systematic fixed-income factor exposures. This conclusion is similar across ESG fixed-income funds with a European, US, and Global investment focus. [ABSTRACT FROM AUTHOR]

Target Date Funds (TDFs) have become the default investment choice in retirement accounts for most households. Later-dated TDFs (e.g., further away from the present day) allocate a more significant percentage of each dollar invested into equities relative to fixed income. As the TDF moves closer to the designated retirement date, the TDF embarks on its' glide path. We study the impact of the COVID-19 Pandemic and Federal Reserve intervention on the max drawdowns experienced by TDFs during 2020. Later-dated funds experienced more significant drawdowns relative to near-dated funds. Moving out one target date fund increased the drawdown by approximately 1.90%. Approximately 80% of TDFs experienced their max drawdown on 23 March 2020. The max drawdowns of the TDFs are then studied in the following three sub-periods: (1) before the first Federal Reserve Intervention (2 March 2020), (2) after the first intervention and before the second intervention (16 March 2020), and (3) the period after the second intervention. TDFs experienced the greatest drawdowns after the first intervention by the Federal Reserve (approximately 19%) relative to the other two periods (approximately 7%). Fees associated with the TDFs tend not to influence the drawdowns except for the near-dated funds, where the low-fee funds performed better. Finally, near-dated funds recovered from their max drawdowns around September 2020, whereas later-dated funds did not fully recover until December 2020. [ABSTRACT FROM AUTHOR]

Green bonds are about a decade old financial instrument with cash flows earmarked to improve the environment or combat climate change. The author shows the spectacular growth of the asset class over time but notes that it is currently still less than 1% of the investment grade fixed income market. The composition of the asset class has changed considerably over time. At the start, it was mainly very safe supranational institutions issuing in various currencies with relatively short maturities. Corporates, especially utilities, followed them, and more recently, governments have started issuing green bonds. These sharp composition changes make historical data from before 2015 less representative for the future. The author's returns- and characteristics-based analyses show that investors allocating to green bonds should finance this from an aggregate fixed income allocation if they want to reduce the impact on the risk and return characteristics of the existing portfolio. [ABSTRACT FROM AUTHOR]

In the summer of 1991, the first issue of The Journal of Fixed Income was published. More than 900 articles have been published in the journal since then, educating market participants with an understanding of the many complex fixed-income products developed over the 30 years that followed as well as introducing analytical concepts for fixed-income portfolio management that are used today by practitioners and are included in the analytics packages provided by third-party vendors. In this article, the author describes 72 articles that demonstrate the importance of the journal in advancing fixed-income analytics as well as in providing portfolio managers with insights to enhance portfolio returns by demonstrating the drivers of returns and where individuals can capitalize on opportunities in the market. [ABSTRACT FROM AUTHOR]

Quantitative techniques have long been used to measure and control risk in credit portfolios. More recently, interest has grown in a systematic approach to generating alpha in credit, with the promise of improved scalability and lower management expenses. We review several signals that seek alpha in credit, including value, equity momentum, equity short interest, and post-earnings announcement drift, and demonstrate that such strategies can effectively complement a more fundamental approach. We also show how systematic strategies can exploit index inefficiencies, such as the overselling and subsequent recovery of fallen angels. Company ratings on environmental, social, and governance issues have become central to portfolio management, and we discuss various aspects of their use: how to measure their performance, how to glean alpha signals from them, and how to most effectively constrain them. Finally, liquidity and transaction costs have always been key concerns for credit portfolio managers. We discuss how the liquidity landscape has evolved with the rise in exchange-traded funds and portfolio trading in corporate bonds. Putting it all together, we discuss portfolio construction techniques that can optimally combine signals and integrate transaction costs. [ABSTRACT FROM AUTHOR]

This empirical performance attribution methodology provides an objective alternative to the existing practice of employing proprietary model-dependent systems with portfolio composition information. With only a time series of portfolio returns, this methodology detects multidimensional risk exposures, whether intended or unintended. The results allow for comparison of styles, risk exposures, and sources of performance across managers. Furthermore, as part of a well-designed internal investment process, this independent attribution methodology delivers a feedback mechanism for identifying systematic biases in analytical models that need correction. [ABSTRACT FROM AUTHOR]

The inaugural issue of The Journal of Fixed Income led with an article by a junior professor at Duke University (me) who linked the slope of the yield curve--the difference between long-term and short-term yields--to future economic growth. Thirty years later, this article assess the out-of-sample performance of the yield curve indicator. Four recessions have come and gone since the original article was submitted to The Journal of Fixed Income in 1990. Each time the yield curve has inverted prior to the recession. This article also provides some additional background regarding the genesis of the idea. [ABSTRACT FROM AUTHOR]

Over the past 31 years, The Journal of Fixed Income has published articles that were primers about the structure and risk characteristics for the growing number of complex mortgage-related securities introduced in the market and analytical tools for evaluating their value and risk characteristics. In addition, articles in the journal have influenced important public policy decisions regarding the housing finance market. In this article, the author reviews 74 articles published in The Journal of Fixed Income that cover topics of critical importance to participants in the mortgage-backed securities market. [ABSTRACT FROM AUTHOR]

Interest in sustainable investing has exploded in recent years, initially focused on public equity markets but now evolving into fixed income. We assess various aspects of sustainable investing for developed market corporate bond markets (both Investment Grade and High Yield). Using a representative set of sustainability measures spanning environment, societal, and governance (ESG) constructs we find (1) credit spreads are only marginally associated with ESG measures, (2) ESG measures are only marginally associated with standard return forecasting measures for corporate bonds, (3) ESG measures are not reliably associated with future credit excess returns, and (4) ESG measures are negatively associated with the future volatility of credit excess returns. While the direct investment impact of sustainability is modest, there still is considerable interest from asset owners to ensure credit allocations are sustainable. We find that it is possible to incorporate both static and dynamic exclusion screens, positive tilts toward more sustainable issuers, and economically meaningful reduction in carbon intensity, with minimal portfolio distortions. Thus, a well-implemented systematic approach has the potential to offer attractive risk-adjusted returns in a sustainable manner. [ABSTRACT FROM AUTHOR]

Using simple national income accounting and a fixed coefficient two sector model this paper examines how the problem of capital valuation upsets the foundations of the marginal productivity theory of distribution. Assuming no capital valuation problem and zero Wicksell effect, both marginalist theory and the labour theory of value hold. However, the same equation that makes the Wicksell effect zero also entails the profit realization condition of effective demand for the 'golden age'. This argument is extended providing a new perspective to the link between effective demand and capital theory. [ABSTRACT FROM AUTHOR]

Carry, value, and momentum are the trinity of systematic investing. As signals, it is important to know what they signify and how to interpret the signals. What is the cost of delay? How does their effectiveness change as a function of the holding period? The authors illustrate how these signals can differ in terms of their informational content and persistence. They also show how classification trees can be used to combine these signals to get the most meaning out of them. [ABSTRACT FROM AUTHOR]

Purpose: In 2004, Roanoke College began offering a Student-Managed Fund course, wherein students were able to manage a portfolio of equity and fixed income using real money. While not a widely adopted concept at the time, it has since become quite common in finance programs, either through courses or clubs. In February 2019, the author supplemented activities in the course with the addition of real cryptoassets for students to manage. The paper discusses the design, implementation, and pedagogical advantages of the fund. Design/methodology/approach: The paper expands on the existing literature regarding student-managed investment funds (SMIFs or SMFs) by presenting a case study on the implementation of a student-managed cryptoasset fund at Roanoke College. Findings: The value of experiential learning through student-managed funds (SMFs) is well established. Thus, these programs have become much more common in recent years and are now often expanding to securities beyond equities and bonds. The introduction of cryptoassets to be traded by students at Roanoke College is another step in improving students' exposure to various markets and appears to further improve research and critical thinking skills. Originality/value: This is certainly one of the first, and to the author's knowledge may be the only, real money cryptoasset fund managed by students. [ABSTRACT FROM AUTHOR]

This article analyzes the out-of-sample performance of portfolio optimization models in the US corporate bond universe. In our empirical study, we measure the benefits of naive diversification and find that it eventually reaches a limit as the number of bonds increases. Also, we observe substantial improvements in the risk-adjusted performance of scientific portfolio constructions when compared to simple barbell strategies for the same given duration. When duration constraints are relaxed, we find that both naively and scientifically diversified portfolios outperform cap-weighted benchmarks in terms of Sharpe ratio. [ABSTRACT FROM AUTHOR]