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PREDICTION-BASED INVESTMENT STRATEGIES IN EUROPEAN BOND MARKETS.
- Source :
-
Ad Alta: Journal of Interdisciplinary Research . Jun2023, Vol. 13 Issue 1, p206-210. 5p. - Publication Year :
- 2023
-
Abstract
- Daily returns of the European corporate bond market are predicted using a penalized Lasso regression or Random forests. Predictions are utilized in investment strategies that allocate resources into risky position: interest-rate hedged corporate bonds or unhedged corporate bonds and risk-free position proxied by the Euro-Bobl futures that track the German government bonds. The strategies are more profitable with a lower risk than their passive alternatives, which only invest in corporate bonds (hedged or unhedged), but the daily rebalancing can be costly. Therefore, we examine the break-even transaction costs and suggest two approaches to lower the overall costs. Overall, even with costs, active strategies based on prediction can achieve higher returns with a lower risk. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 18047890
- Volume :
- 13
- Issue :
- 1
- Database :
- Academic Search Index
- Journal :
- Ad Alta: Journal of Interdisciplinary Research
- Publication Type :
- Academic Journal
- Accession number :
- 164806517