Portfolio benefits of adding corporate credit default swap indices: evidence from North America and Europe
Benjamin Hippert (),
Andre Uhde () and
Sascha Tobias Wengerek ()
Additional contact information
Benjamin Hippert: Paderborn University
Sascha Tobias Wengerek: Paderborn University
Review of Derivatives Research, 2019, vol. 22, issue 2, 203-259
Abstract Employing main and sector-specific investment-grade CDS indices from the North American and European CDS market and performing mean-variance out-of-sample analyses for conservative and aggressive investors over the period from 2006 to 2014, this paper analyzes portfolio benefits of adding corporate CDS indices to a traditional financial portfolio consisting of stock and sovereign bond indices. As a baseline result, we initially find an increase in portfolio (downside) risk-diversification when adding CDS indices, which is observed irrespective of both CDS markets, investor-types and different sub-periods, including the global financial crisis and European sovereign debt crisis. In addition, the analysis reveals higher portfolio excess returns and performance in CDS index portfolios, however, these effects clearly differ between markets, investor-types and sub-periods. Overall, portfolio benefits of adding CDS indices mainly result from the fact that institutional investors replace sovereign bond indices rather than stock indices by CDS indices due to better risk-return characteristics. Our baseline findings remain robust under a variety of robustness checks. Results from sensitivity analyses provide further important implications for institutional investors with a strategic focus on a long-term conservative portfolio management.
Keywords: Corporate credit default swap indices; Mean-variance asset allocation; Out-of-sample portfolio optimization; Portfolio risk-diversification; Portfolio performance evaluation (search for similar items in EconPapers)
JEL-codes: C61 G01 G11 G15 G23 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11147-018-9148-8 Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:revdev:v:22:y:2019:i:2:d:10.1007_s11147-018-9148-8
Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11147/PS2
Access Statistics for this article
Review of Derivatives Research is currently edited by Gurdip Bakshi and Dilip Madan
More articles in Review of Derivatives Research from Springer
Bibliographic data for series maintained by Sonal Shukla ().