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Factors and corporate bonds: Single- and multi-factor approaches to corporate credit

categories: Americas, VARSANI Hitendra, JAIN Vipul, MENDIRATTA Rohit, Asset Allocation and Asset Liability Management, Asset Pricing and Valuation, Factor and Risk Modeling, Investing (Investment Management), Performance Analysis, Portfolio Construction and Optimization, Risk Management, Asset Managers (Quant or Fundamental), Asset Owners, Banks, Hedge Funds, Indexes, Portfolio Management Analytics, Risk Management Analytics, Credit, Fixed Income

Investors have increasingly turned to equity factors as building blocks for their stock portfolios as a way to measure performance, analyze risk exposures or seek enhanced returns. In recent years, some investors have sought to extend a factor framework to fixed income. But these efforts by and large have not been successful, as equity and fixed-income investors have not been speaking a common language. We simulated the performance of six fixed-income factors — value, low size, quality, momentum, carry and low risk — that broadly align with MSCI’s equity factors. Did these factors offer a risk-return edge?

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