PT  - JOURNAL ARTICLE
AU  - Robert D Arnott
AU  - Jason C. Hsu
AU  - Feifei Li
AU  - Shane D. Shepherd
TI  - Valuation-Indifferent Weighting for Bonds
AID  - 10.3905/jpm.2010.36.3.117
DP  - 2010 Apr 30
TA  - The Journal of Portfolio Management
PG  - 117--130
VI  - 36
IP  - 3
4099  - https://pm-research.com/content/36/3/117.short
4100  - https://pm-research.com/content/36/3/117.full
AB  - In historical testing, valuation-indifferent weighting applied to U.S. and global equities has produced statistically significant and economically large outperformance when compared with traditional capitalization-weighted benchmarks. In this article, the authors apply valuation-indifferent weighting to U.S. investment-grade corporate bonds,U.S. high-yield bonds, and hard-currency emerging market bonds.They find that fixed-income portfolios constructed using valuation-indifferent weighting outperform their corresponding cap-weighted benchmarks. The authors also find that the outperformance is higher for markets in which more inefficiencies and greater volatilities would be expected to occur. Both findings are consistent with the empirical evidence produced in the equity applications of valuation-indifferent weighting, as well as in the proposed noise-in-price theoretical rationale for the results.TOPICS: Fixed income and structured finance, fixed-income portfolio management