RT Journal Article
SR Electronic
T1 Quantitative Forecasting Models and Active Diversification for International Bonds
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 40
OP 51
DO 10.3905/jfi.2002.319332
VO 12
IS 3
A1 Antti Ilmanen
A1 Rafey Sayood
YR 2002
UL https://pm-research.com/content/12/3/40.abstract
AB Extensive empirical evidence documents relatively consistent if modest predictability in excess bond returns and excess currency returns. The theory that active investors' ability to add value on a risk-adjusted basis is proportional to their forecasting skill motivates the authors to extend empirical forecasting models to new sorts of trades-curve steepness positioning, and cross-country spread trading. They test the performance of increasingly complex trading strategies between 1992 and 2002, from using single indicators to predict specific trades, to pooling indicators into one forecasting model for each trade, and then to diversify across several trades. The broad composites produce the best risk-adjusted performance. One can gain an edge from the limited forecastability of returns and magnify this edge through diversification across strategies.