Risk and Return in Fixed Income Arbitrage: Nickels in front of a Steamroller?
Francis A. Longstaff
University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)
Claremont McKenna College - Robert Day School of Economics and Finance
We conduct an analysis of the risk and return characteristics of a number of widely used ﬁxed income arbitrage strategies. We ﬁnd that the strategies requiring more "intellectual capital" to implement tend to produce signiﬁcant alphas after controlling for bond and equity market risk factors. These positive alphas remain signiﬁcant even after taking into account typical hedge fund fees. In contrast with other hedge fund strategies, many of the ﬁxed income arbitrage strategies produce positively skewed returns. These results suggest that there may be more economic substance to ﬁxed income arbitrage than simply "picking up nickels in front of a steamroller."
Number of Pages in PDF File: 53working papers series
Date posted: December 28, 2005
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.297 seconds