RT Journal Article
SR Electronic
T1 Return Dynamics of Index-Linked Bond Portfolios
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 78
OP 84
DO 10.3905/jpm.2014.41.1.078
VO 41
IS 1
A1 Matti Koivu
A1 Teemu Pennanen
YR 2014
UL https://pm-research.com/content/41/1/78.abstract
AB 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.TOPICS: Portfolio construction, statistical methods, in markets