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1 – 10 of over 29000C. Edward Chang and Thomas M. Krueger
The purpose of this paper is to examine operating characteristics, risk and performance measures of all available vehicles for index investing in US bond funds during the 15‐year…
Abstract
Purpose
The purpose of this paper is to examine operating characteristics, risk and performance measures of all available vehicles for index investing in US bond funds during the 15‐year period from April, 1994 to March, 2009. The results shed light on the important issue of bond index mutual funds (BIMFs) and bond exchange‐traded funds (BETFs) performance compared with average of all bond mutual funds.
Design/methodology/approach
Data were obtained from Morningstar Principia. Operating characteristics include expense ratios, annual turnover rates, and tax cost ratios. Performance measures include average annual returns and return percentile rank in category, risks (measured by standard deviation) and risk‐adjusted returns (measured by the Sharpe ratio).
Findings
BIMFs and BETFs have significantly lower expense ratios and annual turnover rates than category averages. Their returns and risk‐adjusted returns are significantly higher than bond category averages.
Research limitations/implications
Future studies will be able to benefit from a larger sample size, longer performance records, and the strength of bond index funds in foreign markets.
Practical implications
Both BIMFs and bond exchange‐traded mutual funds have significantly lower expense and annual turnover rates, making them preferred investment choices.
Social implications
Efforts by active bond mutual fund managers to beat index benchmarks have largely failed. Investors should be wary of bond mutual fund managers touting their ability to beat the average or a bond index.
Originality/value
The advantage of investment in BIMFs and BETFs is clear.
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Roy Kouwenberg and Albert Mentink
Over the last few years, Central and East European economies have become more integrated with the West European economy. In general, these economies have become more…
Abstract
Over the last few years, Central and East European economies have become more integrated with the West European economy. In general, these economies have become more market-oriented and restrictions on foreign investment have been relaxed. An important step in this development was the admission of eight East European countries to the European Union (EU) in 2004. As the economic ties between Western, Central and Eastern Europe strengthen, one would naturally expect the financial markets to follow suit and become more integrated as well. A good example is the historical case of the Italian and German government bond markets: Before 1999 these two markets differed markedly in terms of credit quality and price volatility, but since the creation of the Euro zone in 1999 they have become highly similar.
This paper aims to examine the behaviour, both contemporaneous and causal, of stock and bond markets across four major international countries.
Abstract
Purpose
This paper aims to examine the behaviour, both contemporaneous and causal, of stock and bond markets across four major international countries.
Design/methodology/approach
The authors generate volatility and correlations using the realised volatility approach and implement a general vector autoregression approach to examine causality and spillovers.
Findings
While results confirm that same asset-cross country return correlations and spillovers increase over time, the same in not true with variance and covariance behaviour. Volatility spillovers across countries exhibit a substantial amount of time variation; however, there is no evidence of trending in any direction. Equally, cross asset – same country correlations exhibit both negative and positive values. Further, the authors report an inverse relation between same asset – cross country return correlations and cross asset – same country return correlations, i.e. the stock return correlation across countries increases at the same time the stock and bond return correlation within each country declines. Moreover, the results show that the stock and bond return correlations exhibit commonality across countries. The results also demonstrate that stock returns lead movement in bond returns, while US stock and bond returns have predictive power other country stock and bond returns. In terms of the markets analysed, Japan exhibits a distinct nature compared with those of Germany, the UK and USA.
Originality/value
The results presented here provide a detailed characterisation of how assets interact both with each other and cross-countries and should be of interest to portfolio managers, policy-makers and those interested in modelling cross-market behaviour. Notably, the authors reveal key differences between the behaviour of stocks and bonds and across different countries.
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Hai Lin, Xinyuan Stacie Tao, Junbo Wang and Chunchi Wu
This chapter examines momentum in the corporate bond market using a comprehensive data set that includes bonds with different characteristics and provisions. We find that momentum…
Abstract
This chapter examines momentum in the corporate bond market using a comprehensive data set that includes bonds with different characteristics and provisions. We find that momentum exists in a wide range of corporate bonds. The momentum effect is more significant for callable bonds and lower-rated bonds. This effect cannot be explained by standard risk factors and liquidity in the bond market. Bond momentum prevails over time and remains strong even after the corporate bond market becomes more transparent and liquid with establishment of TRACE. The high magnitude of momentum profits casts doubt that they can be explained by risk-based theories.
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Renee M. Oyotode-Adebile and Zubair Ali Raja
The purpose of this paper is to examine the impact of board gender diversity on bond terms and bondholders’ returns.
Abstract
Purpose
The purpose of this paper is to examine the impact of board gender diversity on bond terms and bondholders’ returns.
Design/methodology/approach
The authors perform pooled OLS regression, simultaneous regressions and propensity score matching to a panel data set of bond data for 319 US firms from 2007 to 2014.
Findings
The authors find that firms with gender-diverse boards have lower yields, higher ratings, larger issue size and shorter maturity. They also find that bondholders require fewer returns from firms with gender-diverse boards. However, the effect is more pronounced when women, constitutes at least 29.67 percent of the board.
Originality/value
This analysis supplements the findings that board gender diversity is essential for bondholders. It shows that bondholders should look at board gender diversity as a criterion to invest because bonds issued by firms with gender-diverse board have less risk. For practitioners, this study shows that more women participation on boards leads to a reduction in borrowing costs.
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The purpose of this study is to examine the effect of bank interventions on bond performance in relation to loan covenant violations.
Abstract
Purpose
The purpose of this study is to examine the effect of bank interventions on bond performance in relation to loan covenant violations.
Design/methodology/approach
This paper tests the following questions: do bondholders receive benefits from bank interventions? Is bond performance related to the probability of bank interventions? Is the turnover of a chief executive officer (CEO) associated with bank interventions and bond performance? Abnormal bond returns, the difference between bond returns and matched bond index returns are used to measure bond performance. An estimated outstanding loan balance is used to measure the probability of bank interventions. CEO turnover is identified from proxy statements and categorized into forced and voluntary CEO turnovers. Event studies and regression analysis were used to answer the above research questions.
Findings
This paper finds that both short-term and long-term bond returns increase after covenant violations, bond performance is positively related to the probability of bank interventions, forced CEO turnovers are positively associated with the probability of bank interventions and firms with forced CEO turnovers tend to have superior bond performance.
Originality/value
This paper is the first to explore the relation between bank interventions and bond performance.
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This paper investigates the impact of a change in economic policy uncertainty
Abstract
Purpose
This paper investigates the impact of a change in economic policy uncertainty
Design/methodology/approach
The paper uses Engle's (2009) dynamic conditional correlation (DCC) model and Chiang's (1988) rolling correlation model to generate correlations of asset returns over time and analyzes their responses to
Findings
Evidence shows that stock-bond return correlations are negatively correlated to
Research limitations/implications
The findings are based entirely on the data for China's asset markets; further research may expand this analysis to other emerging markets, depending on the availability of GPR indices.
Practical implications
Evidence suggests that the performance of the Chinese market differs from advanced markets. This study shows that gold is a safe haven and can be viewed as an asset to hedge against policy uncertainty and geopolitical risk in Chinese financial markets.
Social implications
This study identify the special role for the gold prices in response to the economic policy uncertainty and the geopolitical risk. Evidence shows that stock and bond return correlation is negatively related to the ΔEPU and support the flight-to-quality hypothesis. However, the stock-gold return correlation is positively related to |ΔGPR|, resulting from the income or wealth effect.
Originality/value
The presence of a dynamic correlations between stock-bond and stock-gold relations in response to
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Ruixiang Jiang, Bo Wang, Chunchi Wu and Yue Zhang
This chapter examines the impacts of scheduled announcements of 14 widely followed macroeconomic news on the corporate bond market from July 2002 to June 2017 and documents…
Abstract
This chapter examines the impacts of scheduled announcements of 14 widely followed macroeconomic news on the corporate bond market from July 2002 to June 2017 and documents several new findings. First, good (bad) macroeconomic news tends to have a negative (positive) effect on IG bond returns and a positive (negative) effect on high-yield (HY) bond returns. Second, nonfarm payroll (NFP) appears to be the “King of announcements” for the corporate bond market. Third, while information about revisions of prior releases is incorporated into bond prices on announcement days, future revisions fail to be priced in. Fourth, the news information is thoroughly and quickly reflected in bond prices on the announcement day. Finally, corporate bond volatility increases on announcement days, whereas the Zero Lower Bound (ZLB) policy has little effect on conditional volatility.
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Eduardo Canabarro, Markus Finkemeier, Richard R. Anderson and Fouad Bendimerad
Insurance‐linked securities can benefit both issuers and investors; they supply insurance and reinsurance companies with additional risk capital at reasonable prices (with little…
Abstract
Insurance‐linked securities can benefit both issuers and investors; they supply insurance and reinsurance companies with additional risk capital at reasonable prices (with little or no credit risk), and supply excess returns to investors that are uncorrelated with the returns of other financial assets. This article explains the terminology of insurance and reinsurance, the structure of insurance‐linked securities, and provides an overview of major transactions. First, there is a discussion of how stochastic catastrophe modeling has been applied to assess the risk of natural catastrophes, including the reliability and validation of the risk models. Second, the authors compare the risk‐adjusted returns of recent securitizations on the basis of relative value. Compared with high‐yield bonds, catastrophe (“CAT”) bonds have wide spreads and very attractive Sharpe ratios. In fact, the risk‐adjusted returns on CAT bonds dominate high‐yield bonds. Furthermore, since natural catastrophe risk is essentially uncorrelated with market risk, high expected excess returns make CAT bonds high‐alpha assets. The authors illustrate this point and show that a relatively small allocation of insurance‐linked securities within a fixed income portfolio can enhance the expected return and simultaneously decrease risk, without significantly changing the skewness and kurtosis of the return distribution.
Thomas H. Thompson and Vince Apilado
The purpose of this paper is to provide a comprehensive initial evaluation of the wealth transfer hypothesis as applied to the second‐stage events and announcements that follow…
Abstract
Purpose
The purpose of this paper is to provide a comprehensive initial evaluation of the wealth transfer hypothesis as applied to the second‐stage events and announcements that follow carve‐outs during the period from 1983 to 2004.
Design/methodology/approach
Using daily security prices, such combinations are shown to have multi‐faceted wealth transfers and wealth creation.
Findings
In contrast with the wealth losses found in previous studies, wealth increases are observed for parent stockholders and bondholders in the spin‐off announcement and event phases for combination carve‐outs and spin‐offs. Also, the spin‐off is the most prevalent second divestiture choice for parents with traded debt.
Originality/value
This study makes several contributions to the literature. First, in contrast with recent wealth transfer studies that use monthly bond returns, daily stock and bond returns are used to examine the wealth effect for parent stockholders and bondholders during the announcement and ex‐dates of second‐stage events. Second, in contrast with previous studies that found a wealth transfer from bondholders to stockholders in the spin‐off phase, statistically significant wealth retention was observed for bondholders and for stockholders at spin‐off and other second event announcements. Third, the results reflect that increased collateral from the carve‐out phase lessens the potential for bondholder wealth loss in the spin‐off phase.
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