Bridge over ocean
1 January 2017 Financial Analysts Journal Volume 73, Issue 1

Fundamental Indexing in Global Bond Markets: The Risk Exposure Explains It All

  1. Lidia Bolla

To investigate the fundamental indexing methodology, I apply it to global government bond markets and examine its exposure to several newly introduced risk factors. I find that the fundamental indexing approach outperforms a market-value-weighted index. However, my results show statistically significant and economically relevant exposures of fundamentally weighted indexes to the risk factors term and duration risk, default risk, convexity risk, liquidity risk, and carry trade risk. The increased risk exposure explains the outperformance of the fundamental indexing methodology in government bond markets.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.