The structure of spot rates and immunization

Article Abstract:

Empirical studies of the modern theories of bond pricing typically choose proxies for the state variables in a rather arbitrary fashion. This paper empirically analyzes the question of the optimal spot rates to use as state variables. Our findings indicate that the four-year spot rate serves as the best proxy in the one-state-variable model. In the case of the two-state-variables model, the six-year rate and eight-month rate are identified as best. Tests of the out-of-sample prediction ability indicate that our model is superior to Macaulay's duration model and alternative proxies for state variables. (Reprinted by permission of the publisher.)

Research, Prices and rates, Securities, Bonds, Bonds (Securities)

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Explaining the rate spread on corporate bonds

Article Abstract:

This article attempts to explain the spread between government bonds and corporate bonds. Results show that premiums in corporate rates are affected by expected defaults to a small amount and by state taxes to a substantial extent, the rest being explained by risk premiums for common stocks.

World, Statistical Data Included, Management, Government securities, Corporate bonds

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Are Investors Rational? Choices among Index Funds

Article Abstract:

Research on Standard and Poor's 500 index funds shows that choosing funds based on high past returns or low expenses outperforms index fund portfolios chosen by investors. Therefore, dominated products may prosper in a non-arbitrage market.

United States, Commercial Banks, Investment Banking and Securities Dealing, Portfolio Management, Capital funds & cash flow, Portfolio & Funds Management, Methods, Comparative analysis, Index funds, Valuation, Investment analysis, Securities analysis, Standard and Poor's 500-Stock Price Index (Index)

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