Dynamic Portfolio Strategies in the European Corporate Bond Market
30th Australasian Finance and Banking Conference 2017
In this paper, we propose a dynamic portfolio strategy for European corporate bonds based on a two-factor pricing model. We introduce a strategy in which we forecast both future factors as well as bonds' future exposure to these factor. Using a unique dataset that is representative for the universe of actively quoted European corporate bonds, we find that the strategy based on forecasted factors outperforms a number of benchmark strategies, whereas the strategy based on forecasted exposures does not. There is, however, ample time variation in the performance, related to market uncertainty and the level of market integration. At the individual bond level, we find signifcant outperformance over the benchmark.
|Corporate bonds, Dynamic portfolio strategies, Country and industry factors, Mean-variance model|
|Portfolio Choice; Investment Decisions (jel G11), Asset Pricing (jel G12), Financial Forecasting (jel G17)|
|Organisation||Erasmus School of Economics|
Pieterse-Bloem, M, Verschoor, W.F.C, Qian, Z, & Zwinkels, R.C.J. (2017). Dynamic Portfolio Strategies in the European Corporate Bond Market. Retrieved from http://hdl.handle.net/1765/105365