The Cross-Sectional Dispersion and Volatility of Bond Returns and Manager Outperformance: This paper examines the link between fixed income manager outperformance and both longitud ...
Principal at PGIM Institutional Advisory & Solutions (USA)
The Cross-Sectional Dispersion and Volatility of Bond Returns and Manager Outperformance: This paper examines the link between fixed income manager outperformance and both longitudinal and cross-sectional volatility in the bond markets. By conditioning our analysis based on different market environments such as rising yield regimes and periods of increasing volatility, we show that opportunities in the bond markets and the effectiveness of manager skills are time-varying. Even after accounting for systematic manager style biases, both cross-sectional dispersion and time-series volatility measurably impact manager outperformance, thus providing bond managers with an opportunity for active management. Time-varying opportunity indicators can be utilized to successfully employ timing between active and passive strategies, thereby producing economically significant information ratios and demonstrating the benefits of time-varying active risk budget.
Revisiting Inflation and Individual Equities: This paper reexamines the inflation-hedging properties of individual equities. We propose multivariate regressions that utilize all available data and account for equity market factor when determining inflation betas for individual equities. We show how such an approach can even be used to create inflation-sensitive strategies for customized inflation indices. The facet of customization is necessary since different kinds of inflation impact different investors. For example, in retirement an investor is more concerned about medical expenses. We illustrate strategies for the US headline CPI, Forbes Cost of Living Extremely Well Index (CLEWI), and the US Medical Care Price Index. When constructing inflation-sensitive portfolios, besides using equally weighting scheme, we show how alternative weighting schemes can be used alongside the choice of inflation sensitive equities to accentuate inflation sensitivity, by using maximum beta optimization or to manage equity risk exposure—low volatility and equity beta as result of using minimum volatility optimization.
|Thesis Committee :||
Supervisor: Lionel Martellini, EDHEC Business School
External reviewer: Serge Darolles, Paris Dauphine University
Other committee member: René Garcia, EDHEC Business School