FQ INSIGHT: Bond “” and Multi-Asset Portfolios: Volatility is Just the Beginning

May 2017

ED PETERS Partner, Investments

better tied to inflation and monetary policy. Yet in a multi-asset portfolio (MAP), fundamental terms “DYING IS TOUGH, BUT NOT AS TOUGH are absent, particularly in multi-asset styles like AS COMEDY.” risk parity, where balancing statistical risk is - EDMUND KEAN the primary focus. In this paper, we address this disconnect and proffer a better way of looking at the role of bonds in a multi-asset context. These purported last words of the 19th To understand this, we discuss: century Shakespearean actor Edmund • Statistical for stocks vs. bonds in a Kean well describe a similar challenge MPT framework multi-asset managers face today. • Interest rate risk factors as defined in the bond risk literature, leading to the concept As we see it, “Defining equity risk of “utility” or “usefulness” as a measure is tough, but not as tough as defining of the risk/return tradeoff for bonds bond risk.” Many people see bonds as • The implications for MAPs, especially straightforward defensive assets used those that rely on volatility as a measure of for income and diversification – but, like comedy, defining bond risk is not Two Kinds of Risk: Statistical vs. as easy as you might think. Fundamental

Modern Portfolio Theory (MPT) ties risk to Statistical Risks: The Multi-Asset Manager’s View – that is, , correlation Statistical measures of risk are now widely used in and tail risk. That may be fine for equities and portfolio management, with even managers who do most other “risk assets,” but it does not work not view themselves as “quants” using quantitative for bonds.¹ Instead, these statistical risks are, at techniques. Their use has been legislated, as in best, an incomplete view of bond risk. the European Union’s use of value at risk (VAR). Unlike stocks and other risk assets whose Our earlier research about risky assets (see text downside risk increases dramatically when their box on the next page) has shown that statistics volatility rises², bonds tend to experience higher are useful for suggesting the downside risk of

FQ INSIGHT FQ average returns and less downside risk with an stocks and other traditional growth assets such 1 increase in bond standard deviation (volatility). as commodities and high yield bonds. In fact, bond managers rarely discuss statistical However, we have also shown that statistical risks when describing portfolio risk. Instead, measures of risk for bonds, unlike for “risky” discussions turn to fundamental risks, which are assets, tend to vary little over time.³ That’s a

Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss. FIRSTQUADRANT.COM 2 FQ INSIGHT FIRSTQUADRANT.COM In thelast few years, there hasbeen muchdigital Fundamental Risks: TheBondManager’s View for anexplanation. and bear markets, we need to look elsewhere be fairly certain that bonds do indeed have bull affected bythese same measures. Since we can risk andreturn, however, are only marginally Our previous studies have shown thatbond portfolio inthesamemannerasequityrisk. defines riskfor allassets inamulti-asset to measure diversification. Current methodology combines standard deviation andcorrelations portfolios usingacovariance matrix that problem ifyou’re constructing multi-asset FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning and Adrianetal.’s 2014paper and Scheinkman’s classic 1991bondriskpaper These factors have beenidentifiedbyLitterman yield curve, curvature and the term premium. by looking atshort-term yields,theslope ofthe causes interest rates to rise? sensitivity to risinginterest rates. Butwhat is loosely describedasan asset’s downside is oneofthemore prominent riskfactors and ink spilled over riskfactors. Interest rate risk Interest rate risk for bondscan be examined about riskyassets: also capture states ofhighorlow uncertainty. as wideningandnarrowing credit spreads, can state applies. However, other indicators, such median, isthebest-known indicator ofwhich whether it’s above orbelow itslong-term uncertainty andlow uncertainty. TheVIX,and for risky assets have two states —high Our earlierresearch hasshown thatmarkets different market states The behaviorofriskyassets in • History suggests thefollowing lessons higher returns onaverage. lower volatility typically means by lower returns onaverage, while Increased volatility isaccompanied 5 .

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That research hadalready confirmed theeffect of Quadrant work suchas“Risk Cascades”, (2015) targets setbythecentral banksinprevious First the impactofchangesinshort-term interest rate the yield curve. We have already investigated expectations andcentral bankpolicy. in the yield curve since they reflect inflation which we can examine for insightsinto changes These four factors share key characteristics • • • • Each measure reflects adifferent piece of • • • • Let’s look atthesefour factors. diversification benefits. high levels, basically eliminating asset classes like equitiesriseto events happen, correlations within you needitthe most. Whentail Diversification can fail just when markets are fragile. the high-uncertainty state when “Tail events” tend to happenin than arandom process suggests. events, happens much more frequently “Tail risk,”thechance ofextreme uncertainty typically last for years. cycle, and periods of high and low Risk changes over the market discussed here. measure than theother three factors nearer-term debt. It is more difficult to maturity bondsinstead ofrolling over demanded byinvestors to holdlonger- Term premium maturities. and the average of the two- and 30-year difference between the10-year yield Curvature maturities oftwo and10years. and long-term bonds,typically between Slope of current central bankpolicy. Short-term interest rates is theyieldspread between short- istypically definedasthe is theextra yield are a measure 6 . 3 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning short rates in a MAP framework, so we will focus hedging. Manywould also list income, butwhile tail-risk hedgingofriskassets, and(3)deflation in aMAP:(1)diversifying riskassets, (2)indirect how we shouldmeasure risk. bonds have intheportfolio may helpdetermine growth assets. Lookingatthedifferent jobs against inflationrisk,as well asdiversifying the both interest rate risk andhedgingnominalbonds Inflation-linked bonds, for instance, are tied to In fact, most assets have diversification orinflation/deflation protection. each asset hasajoborfunction,suchasgrowth, MAPs use multiple asset classes for a reason: Do Your Job:Usefulness andUtility The Role ofBondsinMAPs Measures Source Bond Risk must understand therole thatbonds play inMAPs. to combine thetwo perspectives. Butfirst, we a comparison). We believe that it would beuseful risk usedbymost MAPmanagers (seeTable 01for cause bearmarkets. term phenomenon. And it is long-term risks that direction, riskisalong-term rather thannear- political issues. When all factors point in one term uncertainty tiedto central bankactivityor actually changingorwhether itisinstead near- see whether long-term inflation expectations are on theremaining factors. MANAGER VS. BOND MANAGER TABLE 01: BOND RISK: TRADITIONAL MAP Sovereign bondsserve three basicfunctions This view contrasts withthestatistical view of By looking atthechangeineachfactor, we can Tail Risk Correlation Volatility MAP multiple Term Premium Curvature Slope Interest Rate Levels Monetary Policy Inflation Bond Manager functions. strategic asset allocation, stocks have more of high uncertainty. Itwould follow that for a and low returns andhighvolatility inperiods volatility during periods of low uncertainty – assets like stocks have highreturns andlow primary function,we sawempirically thatrisky Because risky assets have growth as their as measured usingtheVIXorcredit spreads. through periodsofhighandlow uncertainty do bondshave thehighest utility? when are bondsuseful?Orinquant-speak,when yields are animportant component ofbondrisk. assets for income isdisingenuousthoughcurrent Saying thataMAPmanagerbuyshigh-yielding this isnottruefor buyers ofmulti-asset portfolios. investors may buy bonds individually for income, and yieldcomponents. Alarge partofbondtotal disaggregated thereturns ofbondsinto price 10-year T-Note from 1/1/88to 12/31/16,and US equityprice index andthereturn oftheUS In Table 02,we useddaily returns oftheMSCI tail-risk hedgingeffectiveness inthetwo states. First, we willexamine thediversification and Bond UtilityinTwo Market States their volatility. low uncertainty thansimplistically looking at bonds dotheirjobintheseperiodsofhighand hedging, itmightbemore usefulto examine how for diversification, tail-risk hedging and deflation does notinvest inbondsfor growth, butrather statistical measures of uncertainty. Since a MAP and return donotappearto betiedto these “Risk Cascades”, (2015) utility andvice versa for highuncertainty. straightforward: low uncertainty meanshigh term. Thus,definingutility for stocks is fairly short term, in nature than strategic or longer those positive returns are more tactical, or equities inhighuncertainty periods;however, mean thatyou cannot have positive returns from rather thanhigheruncertainty. Thatdoesnot usefulness, orhigherutility, inperiodsoflower As shown inprevious work, riskyassets go Given thethree functionsthatbondsperform, For bonds,however, definingutilityis“tough.” 7 showed thatbondrisk 4 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning Source: Datastream Low High Macro Uncertainty (JANUARY 1988 -DECEMBER 2016) (AVERAGEDAILY RETURN) “Stable vs. Unstable Markets: ATale ofTwo below itslong-term (1988-2016)median. are defined simply as when the VIX is above or overall will be lower. Uncertainty regimes here a larger partofbondtotal return andreturns uncertainty periods,capital gainswillbecome that. Theimplication for thefuture isthatinhigh this periodwhere currently theyieldisabouthalf yield ontheT-Note hasaveraged about5%over forward, thiscould alsobesignificant since the disentangle thesetwo components. Looking the tail-risk hedgingaspects,itisimportant to essentially return just theiryield.Soto examine part, while inlow uncertainty periods,bonds uncertainty periods capital gains play a large decompose thereturns, we seethatinhigh are unaffected bytheregimes. However, ifwe (IR) for bondslooks similar, implying thatbonds of highandlow uncertainty, theinformation ratio returns historically hasbeentheyield.Inperiods (JANUARY 1988 -DECEMBER 2016) RETURN VS.RETURN RISK TABLE 02: RETURNS IN PERIODS OF HIGH VS. LOW UNCERTAINTY: ANNUALIZED DAILY TABLE 03: BOND TAIL-RISK HEDGING AND DIVERSIFICATION Source: Datastream Low High Macro Uncertainty Table 02reinforces ourearlier finding(See Up Down Up Down Stock Return IR Risk Return IR Risk Return -0.53 -1.00 MSCI US 0.49 0.91 0.13 5.26 0.12 4.70 Yield 10-Year UST-Note -0.05 -0.06 0.04 6.31 0.27 0.30 7.99 2.42 Price Return Price Return 0.04 0.09 States”, 2014) returns have a strong negative correlation uncertainty state, where bondandstock protection for equitiesprimarily inthehigh hedge tail risk. allows usto seewhenbondsmost effectively of positive andnegative equityreturns. This dividing the uncertainty regimes into sub-periods Diversification), we focus on tail-risk hedgingby for equitiesbutnotfor bonds. used by risk parity managers) may be beneficial of adjusting capital allocations for volatility (often table shows thatthe“constant risk”methodology derive primarily from theprice variability. This bond returns andthe boost in risk andreturn In contrast, higher bond volatility leads to higher contradiction oftraditional capital market theory. volatility leads to higher average returns, in to lower average returns for stocks, while low Table 03shows thatbondsprovide downside In Table 03(BondTail-Risk Hedgingand

10-Year UST-Note 0.88 6.31 5.55 0.90 7.99 7.23 Total Return 8 that high equity volatility leads -19.27% -29.17% Correlation 10.89% 1.90% 11.33 10.32 22.22 MSCI USEquityIndex 0.91 0.25 5.65 2117 1660 2047 1742 Days 5 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning perspective ofstatistical risks. rather than examining bondsexclusively from the next atthefundamentals underlying bondrisk, uncertainty states. For thisreason, we look and down together whenusing the VIXto define uncertainty. Thisshows thatriskand return goup IR is virtually identical during both high and low return in the low VIX state is still good, and its describe bondrisk.After all,thetotal bond against tail riskwhenvolatility ishigh. risk-adjusted returns inadditionto hedging is counterproductive because bondsgive higher bonds to compensate for thisincreased volatility can alsoseethat reducing capital allocations to fact that they have higher volatility as well. We “utility,” inthehighuncertainty state despite the say thatbondsare more useful,orhave higher protection whenuncertainty ishigh.So,we can in bothstates, they primarily provide tail-risk effect ofhighyieldsonthetotal return ofbonds. on tail-risk hedging. We again see the stabilizing yield and price returns for another perspective Influence ofYields)breaks bondreturns into correlation isslightly positive. when stocks are down. Asaresult, downside average in such periods, bonds are down protection from bondsismuchweaker. On In periodsoflow uncertainty, however, downside (–29.17%) andthereturns have opposite signs. Source: Datastream Low High Macro Uncertainty (JANUARY 1988 -DECEMBER 2016) DAILY RETURNS TABLE 04: BOND TAIL-RISK HEDGING AND THE INFLUENCE OF YIELDS: BOND AVERAGE But VIXregimes alone are notenoughto While bondsare usefulfor diversification Table 04(BondTail-Risk Hedgingandthe Up Down Up Down 0.02 0.02 0.02 0.02 Yield 10-Year UST-Note -0.05 -0.06 Price Return 0.04 0.09 interest-rate riskto seeifthey could helpto identify We examined trends in three of the key indicators of to Bonds’ Utility Relating Interest-Rate Risk Low High Uncertainty Macro vs. riskwhile low uncertainty isnotasfavorable. high macro uncertainty isgoodfor bondreturns uncertainty inTable 05,butkeep inmindthat indicators thatare associated withhighvs. low bonds ishigherthantheirupsiderisk. deviation inindicating whenthedownside riskof these indicators were more effective thanstandard have historically accompanied it.We found that with thehighervolatility andhigherreturns that when bondswillexperience highuncertainty, along BOND RISK FACTORS TABLE 05: HIGH VS. LOW UNCERTAINTY AND • Our rationale for theseassociations follows: We identifiedthetrends inthesethree

curve isflattening, economic conditions long rates. Incontrast, when theyield environment, short rates fall faster than to aneconomic contraction. Inthis lowering interest rates inreaction happened intheUSwhenFed was Steepening yieldcurves have historically Flattening Steepening Slope -0.03 -0.04 Total Return 0.06 0.11 Contracting Expanding Curvature -0.53 -1.00 MSCI USEquityIndex 0.49 0.91

Falling Rising Term Premium 6 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning Source: Datastream, NYFederal Reserve Low High Macro Uncertainty (JANUARY 1988 -DECEMBER 2016) TABLE 06: INTEREST RATE FACTORS AND BOND UTILITY: ANNUALIZED DAILY RETURNS • • term structure. Moench (2013) as definedinAdrian,Crump, Millsand yield curve slope, buttheterm premium, hold longer-term debt. Thisistiedto the roll short-term instruments rather than inflation isrising,investors willprefer to premium to go to longer maturities. But if In thatcase, investors require ahighrisk that disinflationarypressures are rising. The term premium risesif investors feel or deflationarypressures. environment andbuildingdisinflationary curve isdueto acontracting economic confirms thatthesteepening yield the 10-year andthe30-year. Curvature drops faster thanthespread between rates because thetwo-year note yield Curvature also expands with falling the Fed wasmore reactionary. chaired theFed, 1987–2006.Before then, Fed didnotstart untilAlanGreenspan pressures. Thispreemptive activitybythe economic growth andrelieve inflationary are strong andtheFed raises rates to slow Skew (StdError) Total ReturnIR IR Price Risk Price Return Skew (StdError) Total ReturnIR IR Price Risk Price Return 9 goesacross theentire -0.16(-4.3) 0.77 0.00 6.51 0.02 0.03(+0.6) 1.15 0.47 8.03 3.75 Slope factors appearto capture thisdifference ina of high uncertainty. However, the interest rate volatility andreturns are higher duringperiods our analysis usingtheVIX,we seethatbond the VIX, but they also reveal more. As with over thefullperiodthanitisaswe write this. cushion of the bond yield, which was much higher so we could evaluate the dynamics without the the price return series for the 10-year US T-note Utility) shows theresults ofouranalysis. We used four years, eachcycle isdifferent. because, althoughtheaverage cycle length is interest rate cycle. This isn’t a perfect measure medians to tryto capture turningpointsinthe low. We look at deviations from the four-year the median,macro uncertainty isconsidered uncertainty isconsidered high.Whenitisbelow value exceeds the four-year median, macro “Fractal Market Analysis”, (1994) length ofthemarket cycle, asshown in medians. Thefour-year periodistheaverage measured theirdeviation from four-year The results confirm what we learned using Table 06(Interest Rate Factors andBond To evaluate trends inthesefactors, we -0.13(-3.3) -0.02(-0.5) Curvature 0.80 0.00 6.47 0.01 1.07 0.46 8.03 3.67 10-Year UST-Note

-0.20(-5.6) 0.79 0.00 6.57 0.03 0.11(+2.4) 1.09 0.51 8.09 4.13 Term Premium 10 . Whenthe 7 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning more significant waybecause compared with bonds onthebasisofrising volatility, asmany As we have shown, cuttingaMAP’s allocation to the best wayto drive a MAP’s allocation to bonds. Statistical measures, suchas volatility, are not Implications for MAPs better capture theutilityofbonds. utility ofbonds.Thefundamental riskfactors risk. Nor is volatility the best indicator of the measure ofbond“risk,”particularly downside volatility ishigher. So,high volatility isnota good in periodsofhighuncertainty, even thoughbond utility, orusefulness, ofbondsismuchhigher of thecorrelations usingtheVIXasanindicator. correlations are withinafew percentage points properties ofbondsto equities,asthe bonds ishigherthantheupsiderisk. factors capture timeswhenthedownside riskof volatility is lower. counterintuitively, downside riskishigherwhen uncertainty, there isalonger negative tail. the meaninhighuncertainty, butinlow that riskissymmetrically distributed around and significant for allthree factors. However, in low uncertainty, the skew is negative error (+/-2.0meanssignificance atthe95% level). is positive andsignificant asseenbythe standard slope and curvature. But for the term premium, it the skew isclose to zero andinsignificant for and low macro uncertainty. Inhighuncertainty, the conditional skew for thesub-periodsofhigh attribution to becalculated. InTable 06,we see calculate skew for asubsample allows askew population meanandstandard deviation to Over theMarket Cycle”, 2014) earlier paper(See“How ‘Tail Risk’Changes conditional skew statistic introduced inan in the two environments, as shown by the uncertainty (0.80vs. 0.88). uncertainty (1.07vs. 0.90)andlower inlow findings usingtheVIX,IRishigherinhigh Table 06reinforces ourearlierpointthatthe These factors preserve the diversifying What dothesestatistics tell us?They say Also, theshapeofdistribution differs Thus, unlike volatility, these 11 . Usingthefull So, means less growth, greater downside tail risk constructing a MAP. High volatility for equities with that for equities and other risk assets when how to dothatinafuture paper. uncertainty—may prove useful. We will address utility intwo regimes—high uncertainty andlow fundamental riskfactors whenlooking atbonds’ be amistake. However, combining statistical and constant-risk and risk parity managers do, can utility. How thesefactors are combined depends factors to create amore complete view ofbond combination ofstatistical andfundamental risk than bondvolatility. the utilityofbondsasregime indicators rather MAP managers, we shouldbeconcerned with indicator for bonds,unlike equities. Instead, as regimes. Volatility isnotagoodriskregime regimes, butthey are quite different from equity part oftotal return intoday’s environment. bond volatility lies,willmake upamuchlarger This meansthatprice return, whichiswhere since 1988. Current yieldsare abouthalfofthat. comes from theyield,whichhasaveraged 5% downside risks.Alarge partofbondtotal return overstate future returns while understating their because historical bond returns will probably careful whenusingbondreturns for back-testing managers) can becounterproductive. (as donebymanyconstant-risk andriskparity allocation to bondsbecause ofariseinvolatility utility. Asaresult, reducing aMAP’s capital diversification impactontheportfolio andhigher higher potential returns, more hedgingand and lower utility. For bonds,highvolatility means “FOR BONDS, HIGH VOLATILITY MEANS HIGHER UTILITY.” IMPACT ON THE PORTFOLIO AND HEDGING AND DIVERSIFICATION HIGHER POTENTIAL RETURNS, MORE Volatility’s significance for bonds contrasts Measures of highand low utility should use a This study alsoconfirms thatbondshave Our research alsosuggests thatwe shouldbe 8 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning upon thespecificapplication, a topic we will cover helps inanticipatingliability risk.Whenbond a result, understanding bonddownside risk tied to changes in long-term interest rates. As in particular(andpublicplansless directly) are plans, as well. The liabilities of corporate plans conclusive thantheUSasusedinthisstudy. a viable study using other countries is less transparency isshorter andvaries bycountry, development. Since theperiodof central bank developed countries is arelatively recent the US,central banktransparency for other upon central bank transparency. Compared to interest rate riskfactors andbondriskdepends However, asintheUS, therelationship between other developed market government bonds. bonds, butsimilarresults can befound using that’s astory for anotherday. index,” as implied volatility does for equities. But volatility doesnotnecessarily functionasa“fear between stocks and bonds. Bonds’ implied to equityvolatility andthechangingcovariance volatility. Instead, bonds’ impliedvolatility istied relationship between impliedandrealized bond volatility for equities—there appears to belittle that—unlike inthecase ofimpliedvs. realized volatility. In a forthcoming paper, we will show result, they become less useful. hedging for equitiesorotherriskassets. Asa bonds offer neitherdiversification nor tail-risk increased correlation withequitiesmeansthat and increased correlation withequities.The volatility can be a precursor to lower returns of highinflation(6%andhigher),risingbond and InflationRegimes”,(2015) regime, aswe discussed in“Essential Beta and interest rates. Highinflationisaseparate period wascharacterized bydeclininginflation is taken into account. allocation isnotalways optimalwhenbondutility strategies suchasriskparity, equalvolatility in future papers. Asapreview, for multi-asset Finally, there are implications for pension This paperhasfocused onUSgovernment A second caveat relates to impliedbond We shouldnote somecaveats. Theresearch 12 . Inperiods by thestandard MPTstatistical risksusedfor risk (meaning downside risk) is not well defined Like comedy, definingbondriskis tough. Bond Conclusion reducing dependence onLDI. benefit from shiftingtheir focus to growth and falling andassets are growing, plansponsors can investing (LDI).Conversely, whenliabilitiesare liability hedgesaccordingly usingliability-driven sponsors prepare for thoserisksandprepare 2007–2008. Thesemeasures mayhelpplan as we sawafter theglobal financialcrisisof rising simultaneously withasset values falling, increasing sothatthere isarisk ofliabilities As Table 01showed, asset downside riskisalso discount rates are falling), liabilitiesstart rising. downside risks are decreasing (and yields/ Changes Over theMarket Cycle” FQ Perspectives. Peters, ³Peters, E.andMiranda, B.(2014),“How ‘Tail Risk’ Perspectives. Cascades: AnticipatingFragile and Resilient Markets. FQ ²Ladekarl, J.Peters, E.andMiranda, B.(2015).Risk greater inPeters andMiranda (2015). low to moderate inflation. We address inflation of 6% or asset oriented. Also,we restrict ourreview to aperiodof premium attached to themwhichismore equityand risk- high yield,aswell asemerging market bonds,have arisk developed countries. Credit, bothinvestment grade and ¹When we say“bonds,”we refer to thesovereign debtof Endnotes in this manner, constructing a MAP may be easier. portfolio. Byshiftingperspectives anddefinitions our view ofbondsandwhenthey are useful ina interest rate factors into the picture broadened fail? We found thatincorporating fundamental jobs we have assigned them?Whenwould they portfolio? Whendothey andotherassets dothe of risk.Whenare assets like bondsusefulina concept ofusefulness, or“utility”asameasure “risk” synonymously, we should consider the So, rather thanusetheterms “volatility” and downside bondriskisincreasing ordecreasing. deviation, orvolatility, doesnotdescribewhether most MAPconstruction. Inparticular, standard  9 FQ INSIGHT FIRSTQUADRANT.COM FQ Insight:Bond“Risk”and Multi-Asset Portfolios: Volatility isJust theBeginning Copyright ©byFirst Quadrant, LP,2017,allrightsreserved. MARKETING SERVICES FIRST QUADRANT,L.P. |800E.COLORADO BLVD. SUITE900, PASADENA, CALIFORNIA 91101 obtained from sources believed to bereliable, butitsaccuracy isnotguaranteed. through this period and are subject to change based on market and other conditions. All material has been This material isfor your private information. Theviews expressed are theviews ofFirst Quadrant, L.P.only E. andMiranda, B. (2015). Essential Beta and Inflation Regimes, 7. 12 Market Cycle”, 6. 11 10 Financial Economics. the Term Structure withLinearRegressions. Journalof 9 Two States. FQ Perspectives. 8 7 6 present.html. newyorkfed.org/2014/05/treasury-term-premia-1961- Economics. Retrieved from http://libertystreeteconomics. Treasury Term Premia: 1961-Present. Liberty Street 5 June 1991. Factors Affecting BondReturns.JournalofFixed Income, 4 Regimes. FQ Insight. Peters, E. (2014), Stable vs. Unstable Markets: A Tale of Ibid, 3. Ladekarl etal.,(2015).RiskCascades, 2. Adrian, T. Crump,R.,Mills, B.andMoench,E. (2014). Adrian, T. Crump,R.andMoench,E.(2013).Pricing Litterman, R.andScheinkman,J.(1991).Common Peters, E.(1994).Fractal Market Analysis. New York: Wiley. Peters andMiranda, “How ‘Tail Risk’ChangesOver the Peters and Miranda, Essential Beta and Inflation [email protected] | OFFICE 6266834223| WEB FIRSTQUADRANT.COM