Risk and Return in Fixed Income Arbitrage: Nickels In Front of a Steamroller?
- Topics:
- Investment and Capital Markets
- Tags:
- Finance,
- Financial,
- Financial Services,
- Fixed Income,
- Investment
- Source:
- University of California
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Overview: This paper has conducted an analysis of risk and return characteristics of fixed income arbitrage. It shows that a widely-used fixed income arbitrage strategy based on swap spreads generates sizable positive excess returns over an extended period. The findings shows, that most of these excess returns represent compensation for risk; and very little "arbitrage" in this fixed income arbitrage strategy. Furthermore, these excess returns are related to those in the stock market and Treasury and corporate bond markets. This suggests that the risk of a major financial event or crisis is a common risk factor priced in many financial markets.
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Format: PDF | Size: 466KB | Date: Apr 2004 | Pages: 33
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