Volatility scaling applied to investment-grade bond portfolios

• Autor(a) principal: Rebelo, Maria Alexandra da Costa Pita Martins
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/38938
• topic: Bond portfolios; Return volatility; Scaling; Carteiras de obrigações; Volatilidade da rendibilidade esperada; Estratégias de gestão de carteiras com base na volatilidade; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Scaling excess returns in investment-grade bond portfolios by their past volatility does not increase risk-adjusted returns nor Sharpe Ratios, even considering longer or shorter periods with different degrees of volatility. This is observed for the United States bond market in US dollars. I would expect that volatility scaling could increase alphas for the lowest rated bond portfolios of my sample, that theoretically incorporate a higher degree of equity features, BAA bond portfolios, but that was not the case. When I isolate the credit or default risk from the expected returns, I also verify the inexistence of volatility management risk-adjusted returns. Major institutional holdings, buy and hold strategies typical of bondholders, mean reversion of returns for long-term investments, liquidity constraints, regulatory procedures, transaction costs, all can be reasons why the volatility scaling strategies are not worthwhile.