Low-Risk Anomalies in Global Fixed Income: Evidence from Major Broad Markets

Posted: 7 Sep 2013 Last revised: 3 Feb 2015

Raul Leote de Carvalho

BNP Paribas Investment Partners

Patrick Dugnolle

BNP Paribas - BNP Paribas Investment Partners

Lu Xiao

BNP Paribas Investment Partners

Pierre Moulin

BNP Paribas Investment Partners

Date Written: September 5, 2013

Abstract

In this paper we present the most compelling empirical evidence yet of a low-risk anomaly in fixed income markets. We show that portfolios invested in bonds with the lowest risk would have delivered the largest positive alpha and highest Sharpe ratios and portfolios invested in riskier bonds would have delivered the most negative alpha and lowest Sharpe ratios. Our results proved extremely robust and were confirmed for government bonds, quasi-government and foreign government bonds, securitized and collateralized bonds, corporate investment grade bonds, corporate high yield bonds, emerging market bonds and aggregates of some of these universes. We considered bonds denominated in USD, EUR, GBP and JPY separately and the results proved invariant to the currency. We confirmed the robustness of the results by using different measures of risk. The results were produced using data from the Bank of America Merrill Lynch database from January 1997 which includes 85,442 individual bonds in the 192 months analyzed.

Keywords: Low Risk Anomaly, Fixed Income, CAPM, Minimum Variance

JEL Classification: G12, G14, G15

Suggested Citation

Carvalho, Raul Leote de and Dugnolle, Patrick and Xiao, Lu and Moulin, Pierre, Low-Risk Anomalies in Global Fixed Income: Evidence from Major Broad Markets (September 5, 2013). The Journal of Fixed Income, vol. 23, no. 4, Spring 2014. . Available at SSRN: https://ssrn.com/abstract=2321012 or http://dx.doi.org/10.2139/ssrn.2321012

Raul Leote de Carvalho (Contact Author)

BNP Paribas Investment Partners ( email )

Paris
France
0033158972183 (Phone)

Patrick Dugnolle

BNP Paribas - BNP Paribas Investment Partners ( email )

14 Rue Bergère
Paris, 75009
France

Lu Xiao

BNP Paribas Investment Partners ( email )

14 rue bergère
Paris, 75009
France

Pierre Moulin

BNP Paribas Investment Partners ( email )

Paris
France

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