Have investors been looking for exposure to specific countries since the global financial crisis? - Insights from the Swiss franc bond market

Thomas Nitschka

Issue
2014-13

Pages
34

JEL classification
G10, G12, G15

Keywords
bond return, risk factors, uncertainty

Year
2014

Bonds of Swiss non-government borrowers offered higher daily excess returns ('alphas') than suggested by their sensitivities to standard risk factors over the sample period from 2007 to 2014. By contrast, comparable bonds (same currency denomination and credit rating category) issued by foreign entities did not offer significant risk-adjusted returns and exhibited markedly different sensitivities to Swiss and global risk factors. However, the positive risk-adjusted returns on Swiss bonds disappear when controlling for measures of uncertainty such as stock price volatility. Swiss bond prices rose when stock market volatility was high thus offering insurance in times of uncertainty.