Empirical Evidences on the Interconnectedness between Sampling and Asset Returns’ Distributions

The aim of this work was to test how returns are distributed across multiple asset classes, markets and sampling frequency. We examine returns of swaps, equity and bond indices as well as the rescaling by their volatilities over different horizons (since inception to Q2-2020). Contrarily to some literature, we find that the realized distributions of logarithmic returns, scaled or not by the standard deviations, are skewed and that they may be better fitted by t-skew distributions. Our finding holds true across asset classes, maturity and developed and developing markets. This may explain why models based on dynamic conditional score (DCS) have superior performance when the underlying distribution belongs to the t-skew family. Finally, we show how sampling and distribution of returns are strictly connected. This is of great importance as, for example, extrapolating yearly scenarios from daily performances may prove not to be correct.

Are Multicentre Bond Indices and Related Quantities Reliable Predictors of Excited-State Aromaticity?

Systematic scrutiny is carried out of the ability of multicentre bond indices and the NOEL-based similarity index dAB to serve as excited-state aromaticity criteria. These indices were calculated using state-optimized complete active-space self-consistent field wavefunctions for several low-lying singlet and triplet states of the paradigmatic molecules of benzene and square cyclobutadiene and the inorganic ring S2N2. The comparison of the excited-state indices with aromaticity trends for individual excited states suggested by the values of magnetic aromaticity criteria show that whereas the indices work well for aromaticity reversals between the ground singlet and first triplet electronic states, addressed by Baird’s rule, there are no straightforward parallels between the two sets of data for singlet excited states. The problems experienced while applying multicentre bond indices and dAB to singlet excited states are explained by the loss of the information inherently present in wavefunctions and/or pair densities when calculating the first-order density matrix.

Benchmark-Driven Investments in Emerging Market Bond Markets

This paper reviews the role of benchmark-driven investments in EM local bond markets. We provide an overview of how key EM bond benchmark indices are constructed, how they affect the behavior of investment funds, and what are the likely implications for capital flows and policy-making. Several methods are presented suggesting that the amount of assets benchmarked against widely followed EM local-currency bond indices have risen fivefold since the mid-2000s to around $300 billion. Our review suggests that the benefits of index membership may be tempered by portfolio outflow risks for some countries. This is because benchmark-driven investments may increase the importance of external factors at the expense of domestic factors, raising the risks of outflows unrelated to recipient country fundamentals. Some countries may be disproportionately exposed to these risks, reflecting the way the indices are constructed.

Comparative analysis between global sukuk and bond indices: value-at-risk approach

Purpose Sukuk is an innovative financial instrument with a flexible structure based on Islamic financial contracts, unlike a bond which is based on the structure of a loan imposed with interest. With the notion that sukuk differs considerably from the conventional bonds in terms of risks related to investment, this study aims to examine whether the sukuk market is different from conventional bond markets based on the value-at-risk (VaR) approach. Design/methodology/approach The VaR of a portfolio consists of sukuk and bond indices and is undertaken to determine whether there is any reduction in the VaR amount through the inclusion of the sukuk index in the portfolio. The analysis is undertaken based on the developed and emerging market bond and sukuk indices from January 2010 to December 2015. Findings This paper examines whether the VaR of sukuk market differs from conventional bond markets by using fundamental techniques. It was observed that the VaR amount of sukuk indices is comparatively much lower than the VaR of bond indices in all the cases. Including the sukuk index with each bond index can reduce the VaR of the portfolio by around 30 to 50 per cent for all the developed and emerging market bond indices. Research limitations/implications This research is limited to covering six years of data. Nonetheless, it is able to provide findings which are believed to be useful for the market players. Practical implications This study unveils attractive opportunities in terms of diversification benefits of sukuk indices for international fixed-income portfolios. Originality/value The VaR method is a useful risk management tool. This study uses this method to emphasise the significant reduction of risks and diversification benefits that sukuk investment could offer by including it in the investment portfolio.

Debt Fundamentals and Indices

This chapter serves as an introduction to debt obligations and securities and in particular bonds and related fixed income instruments. The chapter discusses the size of the bond market relative to other traditional asset classes as well as describing different types of debt instruments. The relatively large par value of bonds and structured payments affects the issuance, trading, and ratings processes. The unique structure and risk-return profile of fixed income instruments can be useful for investors to hold in their portfolios. Bonds are obligations of federal and local governments, corporations, and other issuers and are issued via auctions and public and private placements. The fundamental risk factors including interest rate risk, credit risk, and option risk are summarized. Finally, the chapter concludes with a discussion about the purpose and uses of bond indices with a focus on some challenges involved in their construction.

Co-movement dynamics between global sukuk and bond markets

Purpose Market links (and price discovery) between financial assets and lead–lag relationships are topics of interest for financial economists, financial managers and analysts. The lead–lag relationship analysis should consider both short and long-term investors. From a portfolio diversification perspective, the first type of investor is generally more interested in determining the co-movement of financial assets at higher frequencies, which are short-run fluctuations, while the latter concentrates on the relationship at lower frequencies, or long-run fluctuations. The paper aims to discuss these issues. Design/methodology/approach For this study, a technique was employed known as the wavelet approach, which has recently been imported to finance from engineering sciences to study the co-movement dynamics between global sukuk and bond markets. Data cover the period from January 2010 to December 2015. Findings The results indicate that: there is no unidirectional causality from developed market bond indices to Malaysia and Dow Jones indices, which is promising for fixed-income investors of a developed market; and in relation to emerging markets, the Malaysian sukuk market has a bidirectional causality with Indonesia, Malaysia, India and South Korea bond indices but not China bond indices, while in terms of the Dow Jones sukuk index, there is no unidirectional causality between the listed emerging markets and the sukuk index except Indonesia’s market during the sample period. Research limitations/implications This analysis provides evidence regarding the timely and appropriate measure of correlation changes and the behaviour of sukuk and bond indices globally, which is beneficial to the management of sukuk and bond portfolios. Originality/value The evidence hitherto unexplored, which was produced by the application of a wavelet cross-correlation amongst the selected sukuk and bond indices, provides robust and useful information for international financial analysts as well as long and short-term investors.

Bond orders for intermolecular interactions in crystals: charge transfer, ionicity and the effect on intramolecular bonds

The question of whether intermolecular interactions in crystals originate from localized atom...atom interactions or as a result of holistic molecule...molecule close packing is a matter of continuing debate. In this context, the newly introduced Roby–Gould bond indices are reported for intermolecular `σ-hole' interactions, such as halogen bonding and chalcogen bonding, and compared with those for hydrogen bonds. A series of 97 crystal systems exhibiting these interaction motifs obtained from the Cambridge Structural Database (CSD) has been analysed. In contrast with conventional bond-order estimations, the new method separately estimates the ionic and covalent bond indices for atom...atom and molecule...molecule bond orders, which shed light on the nature of these interactions. A consistent trend in charge transfer from halogen/chalcogen bond-acceptor to bond-donor groups has been found in these intermolecular interaction regionsviaHirshfeld atomic partitioning of the electron populations. These results, along with the `conservation of bond orders' tested in the interaction regions, establish the significant role of localized atom...atom interactions in the formation of these intermolecular binding motifs.