Rush for Duration

12 Pages Posted: 16 Feb 2018 Last revised: 9 Mar 2018

Date Written: February 5, 2018

Abstract

Fixed income indices are designed to include a large number of rebalancing driven changes that are responsible for creating price pressure events, through inclusion and exclusion effects, and coupon reinvestment that occurs based on the index rules.

These events are highly predictable and results in a source of alpha for unconstrained active managers capable of absorbing tracking-error risk. The anomaly depends on issuance, and the aversion against duration risk for passive managers. The primary drivers of these flows relates to bond issuance and coupon payments. As long as the issuance schedule is busy, and index managers are unwilling to take duration risk, these price pressures will continue to persist.

Keywords: Bond Indices, Price Pressures, Calendar Anomalies, Passive Investments

JEL Classification: G4, G10, G11, G12

Suggested Citation

Nilsson, Linus, Rush for Duration (February 5, 2018). Available at SSRN: https://ssrn.com/abstract=3118258 or http://dx.doi.org/10.2139/ssrn.3118258

Linus Nilsson (Contact Author)

Independent ( email )

No Address Available

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