Equity Convexity under Major Monetary Policy Shift

IF 1.1 4区 经济学 Q3 BUSINESS, FINANCE Journal of Portfolio Management Pub Date : 2023-05-16 DOI:10.3905/jpm.2023.1.498
Lauren Stagnol, Marc-ali Ben Abdallah, Patrick Herfroy
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Abstract

In this article, the authors intend to gain an understanding of the drivers of stock convexity, also known as gamma. First, using a bottom-up—firm-level—approach, they show that stock fundamentals, particularly metrics related to value (captured by the price-to-book ratio) and historical volatility, allow us to efficiently discriminate between convex and concave stocks. Building on this result, they investigate the ties between the gamma premium and traditional risk factors. Second, they adopt a top-down—macroeconomic-driven—framework to understand which economic environment is the most favorable to convexity: They highlight the importance of the short-term interest rate, the VIX, but also oil price dynamics in a univariate cointegrating vector. These variables share long-term relationships. The authors then evaluate the ability of different models to forecast future convexity premium dynamics. Finally, they seek to employ these signals in the design of a systematic long convexity strategy and show that it leads to significantly improved risk-adjusted returns compared with a capitalization-weighted benchmark, especially in turbulent markets. Convexity exposure appears particularly relevant in a context of monetary policy normalization.
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重大货币政策转变下的股票凸性
在本文中,作者打算了解股票凸性(也称为伽玛)的驱动因素。首先,使用自下而上的——公司层面的——方法,他们表明股票基本面,特别是与价值(通过账面价格比率)和历史波动性相关的指标,使我们能够有效地区分凸股和凹股。基于这一结果,他们调查了伽马溢价与传统风险因素之间的联系。其次,他们采用自上而下的宏观经济驱动框架来理解哪种经济环境最有利于凸性:他们强调了短期利率、波动率指数以及油价动态在单变量协整向量中的重要性。这些变量有着共同的长期关系。然后,作者评估了不同模型预测未来凸性溢价动态的能力。最后,他们试图在设计系统的长凸性策略时使用这些信号,并表明与资本化加权基准相比,这会显著提高风险调整后的回报率,尤其是在动荡的市场中。在货币政策正常化的背景下,凸性敞口似乎特别重要。
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来源期刊
Journal of Portfolio Management
Journal of Portfolio Management Economics, Econometrics and Finance-Finance
CiteScore
2.20
自引率
28.60%
发文量
113
期刊介绍: Founded by Peter Bernstein in 1974, The Journal of Portfolio Management (JPM) is the definitive source of thought-provoking analysis and practical techniques in institutional investing. It offers cutting-edge research on asset allocation, performance measurement, market trends, risk management, portfolio optimization, and more. Each quarterly issue of JPM features articles by the most renowned researchers and practitioners—including Nobel laureates—whose works define modern portfolio theory.
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