Business Cycle Risk in Equities, Fixed Income and Credit Markets

Abstract

I extend the application of Bandi and Tamoni (2014)'s time series decomposition to other asset classes, such as fixed income, credit and credit derivatives, and other models, such as the Fama and French three factor model. I document a significant increase in R squared from using the decomposition across all the asset classes and models. I also exploit the time-domain properties of the decomposition to compute time-varying betas and analyse the determinants of risk across time.

Keywords: asset pricing, factors, smart beta, wavelets, capm, fama, french, value, size, momentum

JEL Classification: G12, G13