RT Journal Article
SR Electronic
T1 A Bond-Picking Model for Corporate Bond Allocation
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 131
OP 139
DO 10.3905/jpm.2010.36.3.131
VO 36
IS 3
A1 Mathieu L’Hoir
A1 Mustafa Boulhabel
YR 2010
UL https://pm-research.com/content/36/3/131.abstract
AB An active investment process in corporate bonds requires an approach that explicitly takes into account the diversification benefits that can be derived from a combination of alpha signals.The main challenge is to find indicators that fulfill at least two conditions.First, each individual alpha signal should achieve consistent performance on a univariate basis, and second, each should exhibit relatively low performance correlation because low correlation is a necessary condition for generating a diversification effect.L’Hoir and Boulhabel show that the combination of three types of signals—valuation signals, equity return signals, and earning momentum signals—fulfills the aforementioned conditions and delivers consistent and stable risk-adjusted returns. The authors present the results of their study for the U.K. corporate bond market.TOPICS: Manager selection, options