DOI: 10.1108/s2514-465020260000014002 ISSN:
How Can We Hedge Against Systematic Risk in High Yield Bond Portfolios?
Hélyoth Hessou, Van Son LaiAbstract
Equity-linked assets, such as futures on the S&P 500 have been considered as hedging instruments for systematic risk in high-yield bond (HYB) portfolios. We construct macro-dependent hedge ratios to rebalance monthly HYB portfolios. For the period spanning March 2000 to October 2020, we estimated hedging ratios that vary with macroeconomic and market volatility factors. These factors drive changes in the covariances between the asset classes in our menu and enable us to hedge effectively against HYB systematic risk.