Constantinos Alexiou

By utilizing a modified version of the Black-Litterman model, the authors explore the asset allocation to high-yield bonds based on an investor’s risk profile. In so doing, the researchers use US data on high-yield bonds and over the period 2007–2013. The key finding relates to the strategic asset allocation to high-yield bonds in a simulated global market portfolio depending on an investor’s risk tolerance. In particular, the share of high-yield bonds does not exceed 4.15% of total assets in a global market portfolio over the period 2007–2013, whilst the allocation remains relatively stable and small on a risk-adjusted basis, irrespective of an investor’s risk profile or the phase of the business cycle. In simple terms, the results suggest that high-yield bonds do not seem to merit a favorable treatment in the asset allocation process relative to other financial instruments in a global market portfolio.

The authors explore the reaction of US stock portfolio returns to macroeconomic announcements spanning the period from April 1998 to May 2017. Using daily returns of 25 portfolios formed on operating profitability and investment, the authors investigate the extent to which potential asymmetries permeate the stock portfolios following macroeconomic announcements. The three methodological approaches utilized in this study suggest that the ISM non-manufacturing index, employees on non-farm payrolls, retail sales, personal consumption expenditure and initial jobless claims have a significant impact on portfolio returns. Also, portfolios consisting of companies with higher operating profitability and investment level are found to be less responsive to announcements. As the particular area has received little currency over the years, this contribution is of great significance, because it provides insights into the reaction of returns in value-weighted portfolios to announcements on certain macro-indicators. At the same time, the study informs portfolio managers of the implications of macroeconomic news, which drive economic expectations and can reverberate through the expected returns in US stock portfolios.