RT Journal Article
SR Electronic
T1 The Efficiency Gains of Long-Short Credit Strategies
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 5
OP 15
DO 10.3905/jfi.2005.605420
VO 15
IS 3
A1 Frederick E. Dopfel
A1 Sunder R. Ramkumar
YR 2005
UL https://pm-research.com/content/15/3/5.abstract
AB The potential efficiency gain associated with long-short active strategies compared with long-only active strategies has been known for some time as it applies to equity portfolios. Owing to recent developments in the fixed-income market, long-short strategies can now be used for credit risk selection. This article reviews the framework and assumptions for assessing the potential efficiency gains for long-short investment-grade credit and high-yield credit strategies compared with the efficiency gains for long-short equity. Despite differences in benchmarks and in security-specific risk and portfolio risk characteristics, the expected efficiency gains for long-short credit strategies are demonstrated to be similar in magnitude to those previously found for long-short equity strategies. This has important implications for how investors should structure fixed-income portfolios to exploit these efficiencies.