Journal of Asset Management最新文献

In this article, five in-depth illustrations of practical applications of various derivatives for risk control for asset management are provided. The illustrations are presented using stock index futures, interest-rate derivatives (Treasury futures and interest rate swaps), options, and equity swaps. The cases presented bridge the gap between theoretical finance and practical application, making it invaluable for those involved in risk management for portfolio managers.

This article investigates a regime-switching investment strategy aimed at mitigating downside risk by reducing market exposure during anticipated unfavorable market regimes. We highlight the statistical jump model (JM) for market regime identification, a recently developed robust model that distinguishes itself from traditional Markov-switching models by enhancing regime persistence through a jump penalty applied at each state transition. Our JM utilizes a feature set comprising risk and return measures derived solely from the return series, with the optimal jump penalty selected through a time series cross-validation method that directly optimizes strategy performance. Our empirical analysis evaluates the realistic out-of-sample performance of various strategies on major equity indices from the US, Germany, and Japan from 1990 to 2023, in the presence of transaction costs and trading delays. The results demonstrate the consistent outperformance of the JM-guided strategy in reducing risk metrics such as volatility and maximum drawdown, and enhancing risk-adjusted returns like the Sharpe ratio, when compared to both hidden Markov model-guided strategy and the buy-and-hold strategy. These findings underline the enhanced persistence, practicality, and versatility of strategies utilizing JMs for regime-switching signals.

This article illustrates two fundamental uses of credit default swaps (CDS) in managing bond portfolios. The applications include CDSs in a buy-and-hold strategy to optimize a portfolio’s return-to-risk profile and employing CDS indices to efficiently replicate corporate bond returns. Each application is thoroughly examined, demonstrating how CDS can serve as a versatile tool for mitigating credit risk while striving for higher returns.

We examine the covariances of corporate bonds in emerging markets (EM) and present an asset pricing framework using instrumented principal component analysis (IPCA) that includes characteristics at the sovereign and bond levels. Our results indicate that EM bond returns are significantly influenced by country-specific risks. Incorporating these characteristics can improve both the total and cross-sectional model fit. We demonstrate that a factor framework tailored to the nuances of the EM universe generates a significant alpha of 2% per annum against the market and a higher information ratio than alternative asset pricing models, such as a conditional beta model designed for developed market (DM) bonds.

This article demonstrates the use of foreign-exchange (FX) derivatives in portfolio management, highlighting the strategic applications of FX forwards, futures, swaps, and options. It begins by detailing how these derivatives help institutional investors mitigate the adverse effects of currency fluctuations on internationally diversified portfolios. A significant focus is placed on currency hedging with derivatives overlays, which consolidate currency exposures across asset classes into a centralized management function, thereby enhancing overall risk management. The article also delves into the strategic uses of FX options, which offer flexible, tailored risk management strategies crucial for handling the complex dynamics of global financial markets. Through real-world examples and theoretical insights, the article illustrates the critical role of FX derivatives in stabilizing portfolio returns and managing exposure to currency risks.

Three real-world applications of derivatives in managing equity portfolios focusing on enhancing income using stock index options are illustrated in this article. Where these strategies are applied, providing practical examples and detailed analyses of their outcomes, is explained. The common pitfalls of option income strategies, particularly the impact of market volatility on yields, and how adjusting strike prices systematically can help achieve more stable income are described. This strategic insight is crucial for portfolio managers looking to enhance their income while managing risk effectively in their equity portfolios.

This article provides real-world applications of equity derivatives in portfolio management, providing a practical approach that transcends the theoretical focus often found in academic literature and derivatives textbooks. The three primary applications include using stock index futures for effective liquidity management, employing cash equitization strategies with futures to optimize cash holdings, and utilizing options to assess and manage event-driven market risks. Each application provides detailed real-world cases, demonstrating how these derivatives serve as essential tools for portfolio managers in enhancing performance and aligning with strategic investment goals.

This study examines how exposure to climate risk, encompassing physical, transition, and regulation risks, affects stock returns. Our main contribution is the insight that stocks with positive temperature co-variation earn lower future returns, acting as a hedge during periods of heightened investor marginal utility. Additionally, a positive change in a firm’s environmental score is associated with higher stock returns, while a higher level of environmental score corresponds to lower stock returns. To evaluate the contribution of climate change factors in the asset pricing model, we construct climate change factor-mimicking portfolios. Empirical results demonstrate that the model, comprising the temperature anomaly factor, climate news factor, and corporate environment factor, consistently outperforms the Fama–French 5-factor and q-factor models in capturing cross-sectional variations in average stock returns. In addition, this model performs better than the model presented by Görgen et al. (2020) and Ume (2021), which incorporate only the carbon risk factor. This underscores the importance of considering multiple facets of climate change in assessing its impact on asset pricing. As a result of this, study, relying solely on one aspect of climate change, may lead to an understatement of its overall effect on financial markets. Implications of this study suggest that considering a multi-faceted approach to climate risk in asset pricing models can lead to more accurate valuation and risk management strategies in financial markets.

ESG investing and its financial performance is nowadays a hot topic luring the attention of all economic agents. All developed financial markets offer sustainable indices to meet the ethical needs of investors. However, this is not the case for a large share of emerging financial markets. This study aims to analyze the financial performance of several MSCI European ESG indices and compare it to their respective conventional benchmarks. We investigate financial performance through time and also over different market conditions using both static and dynamic financial performance measures. The static analysis shows that the sustainable indices are as performant as the conventional index, in most cases. The Emerging Market (EM) Europe ESG Leaders index is less risky than the benchmark. However, the dynamic financial performance analysis reveals that CAPM alpha and beta are time-varying. The rolling window annual analysis shows that the EM Europe ESG Leaders index offers an interesting investment option since it beats the benchmark, less risky and offers the highest performance. Finally, the Markov-Switching analysis indicates that alphas and betas mainly depend on stock market conditions. Indeed, in high volatility market, risk-averse investors would be interested in investing in the ESG index since it reduces market risk. Moreover, when the market is more stable, the sustainable EM Europe ESG Leaders index offers better performance.

Holding volatility as part of an institutional portfolio is often found not to benefit the overall characteristics of the resulting portfolio. This applies to both simple buy and hold but also to short-selling VIX futures to harvest the volatility risk premium. We show that the latter generates positive returns but is unlikely to benefit an existing equity portfolio due to the high correlation with the returns of the S&P 500. Instead, we propose to harvest the volatility risk premium using the full term structure of the VIX in a robust Markowitz (J Financ 7(1):77–91, 1952. https://doi.org/10.2307/2975974)-framework based on Pedersen et al. (Financ Anal J 77(2):124–151, 2021. https://doi.org/10.1080/0015198X.2020.1854543). We show that VIX carry forecasts have predictive power for the futures returns and consequently use these as a market return expectations. In a number of out-of-sample tests, we find that such ex ante Sharpe-optimal portfolios not only yield statistically significant positive performances but also add significant Alpha over typical equity and fixed income factor returns. Several robustness tests confirm that these findings are insensitive to the specific parameter choices. Overall, we conclude that the volatility risk premium can be harvested profitably with a simple dynamic framework using the full term structure of VIX futures—both stand-alone and in the context of an existing institutional portfolio.