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International Journal of Bonds and Derivatives (4 papers in press)
Short-term versus longer-term persistence in performance of equity mutual funds: evidence from the Greek market by Drosos Koutsokostas, Spyros Papathanasiou, Nikolaos Eriotis Abstract: This study investigates the performance persistence of Greek equity mutual funds for the period 11/02/2009-10/31/2017, by utilizing diverse evaluation sub-periods. Using all domestic equity mutual funds at our disposal and daily data, the authors apply the Carhart (1997) model to compute risk-adjusted returns and the nonparametric tests of Malkiel (1995), Brown and Goetzmann (1995) & Kahn and Rudd (1995) to evaluate persistence in performance. Results question a winning-picking strategy based on sustained superior performance, as only weak evidence for quarterly persistence is documented, and provide evidence of the Greek markets efficiency. Furthermore, the usage of longer evaluation periods results in the gradual disappearance of persistence in fund returns due to herding behavior. These results suggest that fund managers follow short-term momentum strategies and investing in Greek equity mutual funds requires frequent portfolio revisions. Keywords: equity mutual funds; risk-adjusted returns; performance persistence; nonparametric; capital controls; capital flows.
Measuring the diversification of a loan portfolio by Agnes Tourin Abstract: We analyze the effect of correlations on a portfolio of loans. Building on an earlier idea developed at Moody's, we define the diversification score as the number of independent loans in an equivalent credit portfolio with the same expected loss and risk level. We perform Monte Carlo simulations to analyze the applicability of this method for two risk measures, namely value at risk and the expected shortfall. Keywords: loan portfolio; default correlations; risk measure; value at risk; expected shortfall; diversification; Monte Carlo sampling.
Features of skewness-adjusted binomial interest rate models by R. Stafford Johnson, Amit Sen Abstract: This paper examines four distinctive features of a skewness-adjusted binomial interest rate model. Specifically: (1) Implied spot yield curves generated from a skewness-adjusted binomial interest rate tree are consistent with interest rate expectations theory. (2) Implied forward rates and implied yields on futures contracts are equal when the skewness-adjusted binomial interest rate tree is calibrated to an end-of-the period distribution reflecting an increasing, decreasing, or stable interest rate trend. (3) The asymptotic properties of the skewness-adjusted binomial interest rate model elevate the importance of the mean in determining the up and down parameters for the case of a large number of sub-periods. (4) The skewness-adjusted Black-Derman-Toy model retains its arbitrage-free features, but loses them when the variability conditions are not adjusted to account for skewness. Keywords: Binomial model; interest rates; skewness; calibration model.
Empirical Study on the Factors affecting Bond Market Returns-Evidence from Indian Markets by S.C. Sharma, Bhavna Chhabra, Navneet Saxena Abstract: Capital market broadly includes fixed income securities i.e. Bond market and Equity market. In India, the retail investors are visible mainly in equity markets, whereas the institutional investors are involved in both the markets. The major investment in bond market is largely due to statutory requirements imposed by different statutory bodies like Reserve Bank of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority etc. In the last 20 years, the Government has formed several committees to activate secondary Bond market with focus on increasing the participation of retail investors. Theoretical foundations related to working of these markets suggest that there exists a relationship between bond market returns and equity market returns. When the volatility (risk) in the equity market increases, the investors tend to reshuffle their portfolios by increasing weightage of fixed income securities. Therefore, by doing this, they try to align their risk appetite to a certain extent. rnrn Bond market returns are affected by various macro economic factors like policy rates determined by RBI and IRDA requirements prescribed for insurance companies to invest in specified government securities etc. Largely interest rates in the economy along with inflation rates and risk in equity markets influences the bond market yields. The value of each security also depends on credit rating assigned by Credit rating agencies. This paper attempts to analyze the impact of various factors on bond yields. Macro-economic fundamentals such as inflation rate, Bank rate, CRR, SLR GDP growth rate are considered as to be the major determinants affecting bond yields. rnrnThis paper examines the impact of equity market returns, volatility in equity markets (VIX) and Rupee-Dollar exchange rate on bond yields. In this study it is assumed that the various economic factors affecting bond yield are constant and it is the equity market returns, its volatility and the exchange rate which affects the bond yields. Keywords: Bond yield; Bond returns; VIX; equity returns; Volatility; bonds; government bonds.