Corporate bonds and equities of the same firm should share the same fundamentals, but does this preposition hold for the ESG scores and their implications? In the equity market, there is convincing literature that states that ESG scores lower risks or even can improve the performance of portfolios. However, it was shown that the ESG implications could not be universally applied to all countries and their markets. Novel research by Slimane et al. (2020) examines the role of the ESG in the fixed market. The paper shows that the fixed income market is probably some years behind the equity market, but the ESG is also emerging in the fixed income. The performance of ESG outperformers compared to underperformers is continually rising. In Europe, the difference is already economically significant; the rest of the world seems to lag a little. Therefore, the ESG might have a bright future also in the corporate bond market. So far, the results are promising…

We have listened to our audience and have prepared a new filtering field which you can use to screen strategies by regional focus.

Plus we continue to re-run some of our codes on a monthly basis systematically, 100 codes are at the moment part of this activity.

Thirteen new Quantpedia Premium strategies have been added into our database, and eleven new related research papers have been included in existing Premium strategies during last month.

Additionally, we have produced 12 new backtests written in QuantConnect code. Our database currently contains nearly 370 strategies with out-of-sample backtests/codes.

Also, five new blog posts, that you may find interesting, have been published on our Quantpedia blog.

Volatility indexes are essential parts of the financial markets. They offer investable opportunities and exposure to the volatility, but most importantly, those indexes offer forward-looking measures of option-implied uncertainty. Therefore, such indexes are often used as indicators of risk or sentiment in the markets. For example, the well-known VIX index is often called the fear-index. The volatility indexes are not exclusive to the equity market. There are fixed-income option-implied volatility indexes for US Treasury futures, but the European fixed income market lacks such index. This novel research paper by Jaroslav Baran and Jan Voříšek fills this gap and proposes volatility indexes, connected to the euro bond futures using the Cboe TYVIX (US Treasury implied volatility index) (2018) methodology. As a result, the TYVIX and euro bond futures volatility indexes are directly comparable.

Authors: Jaroslav Baran and Jan Voříšek

Title: Volatility indices and implied uncertainty measures of European government bond futures

Gold is a hot topic nowadays, but that is not a surprise given the worldwide situation. Gold is by the majority considered as a hedge, safe haven and often recognized for its ability to preserve the value in the long term. However, gold itself is not the only gold-related investable asset. There are numerous gold-related stocks – producers, explorers and developers. Common sense might suggest that the price of such stocks should reflect the gold prices, but the novel research by Baur and Trench (2020) shows that this logic is not always correct. Results suggest that gold equities cannot be considered as safe havens and investors differentiate between producers, explorers and developers during regular times. On the other hand, during the recent (and lasting) stressful COVID period, all types of gold stocks moved similarly to gold.

Authors: Dirk G. Baur and Allan Trench

Title: Not all Gold Shines in Crisis Times – COVID-19 Evidence

Our own research paper ESG Scores and Price Momentum Are More Than Compatible utilized the Knapsack problem to make the ESG strategies more profitable or Momentum strategies significantly less risky. The implementation of the Knapsack problem was created in R, using slightly modified Simulated annealing optimization algorithm. Recently, we have been asked about our implementation and the code. The code is commented and probably could be implemented more efficiently (in R or in another programming language). For example, R is more efficient with matrices, but the code would not be that “straightforward”. Lastly, the most important tuning parameter is the temperature decrease (the probability of accepting a new solution is falling with the rising number of iterations).

The foreign exchange market (FOREX) is opened 24 hours a day, but traders from different parts of the world tend to prefer different trading hours. However, various dominant trading sessions around the globe can lead to time-dependent market characteristics. Novel research by Doman and Doman (2020) has studied how does the daily volatility of FX rates depend on the time of day of calculation. The volatility changes through the day, and the underlying dynamics depend on the time of the estimate. The results can have important implication for practitioners since the volatility differences are large enough so they can influence trading/risk management decisions.

Authors: Małgorzata Doman and Ryszard Doman

Title: How Does the Daily Volatility of Foreign Exchange Rates Depend on the Time of Day at Which the Daily Returns Are Calculated?