Reactions to the EDHEC Study - Faculty and Research

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Reactions to the EDHEC Study “Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks” - May 20123. Survey ResultsFigure 10. If so, would you see them as being more useful fordiversifying equity risk within performance-seeking portfolios,or for inflation risk matching in liability-hedging portfolios?81% of respondents consider inflationlinkedcorporate bonds as a useful additionto the strategic mix of asset classes. Thisindicates that the market for inflationlinkedcorporate debt would not belimited to those seeking liability hedges.Of the 81% who responded affirmatively,over 40% recognised that inflation-linkedbonds have equity-diversifying potential,while over 94% recognised the riskmatching potential.3.5.1 Final Question to InvestorsAs we recognise that inflation-linkedcorporate bonds are a relatively noveladdition to the debt market, we wantedto gain a thorough understanding of theperceived benefits and shortcomings ofinflation-linked corporate debt, as well astheir potential applications and usefulnessin different contexts. We therefore askedrespondents to hypothetically identifyspecific characteristics and uses that theywould find favourable and unfavourable.This allowed us to not only identifythe important issues, but to assesstheir perceived importance relative to eachother.The questions pertained to a variety ofissues including general investmentconcerns such as the need for diversificationand lower costs, as well as investorspecificor organisational matters such asrelevant rules or programs and policies.We also examined key issues specificallyrelated to the nature of the issuer –for instance, we contrasted inflationlinkedcorporate debt with its sovereigncounterpart in regard to liquidity, qualityof credit-ratings, and credit-worthiness inthe event of a spike in inflation.In accordance with the strong recognitionof the hedging properties of inflationlinkedbonds, 61% of respondents citedthe diversification and liability-hedgingpotential as a favourable attribute.It is also notable that only 14% ofrespondents felt that corporate debt is lessFigure 11. As far as investing in the liability-hedging portfolio is concerned, what would be your arguments for investing or notinvesting in inflation-linked corporate bonds?I am favourable because:18 An EDHEC-Risk Institute Publication
Reactions to the EDHEC Study “Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks” - May 20123. Survey ResultsFigure 12. As far as investing in the liability-hedging portfolio is concerned, what would be your arguments for investing or notinvesting in inflation-linked corporate bonds?I am not favourable because:risky with regard to risk documentation,forecastability and stability, and availabilityof reliable ratings.It is worth noting that the leastfavourable attribute is recognised by 33%of respondents, compared to the mostfavourable attribute which is recognisedby 61%. Our responses further reveal thatcredit-worthiness – within the context ofan inflation-linked corporate bond – mightbe one of the more prominent concernsheld by investors. As we provided an “other”option to capture possible issues whichwere left out, we can be fairly certainthat these two broad questions capturedthe essence of the most favourable andunfavourable characteristics perceived byour respondents.An EDHEC-Risk Institute Publication19
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Reactions to the EDHEC Study - Faculty and Research

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