A Study on the Criteria for Investment in the Bond Market

Abstract

This paper uses relevant information to illustrate some of the factors that influence investors' choice of bonds: by analyzing a cross-section of firms to conclude that insurance companies with stronger regulatory capital constraints tend to seek higher yields; according to the findings of a study into the added value of inflation-linked bonds in a portfolio, inflation-linked bonds widen the mean-variance efficient frontier for investors holding nominal bonds and stocks by simulating credit spreads that are more like those actually seen in the market and modeling leverage as a mean-reversion; and the findings indicate that market liquidity is neutrally or favorably impacted by portfolio trading transparency. This was established by using a controlled experiment to investigate the impact of transparency on the liquidity of the BBB bond market. In addition, some suggestions are put forward for some related investors, and the future research direction is also proposed at the end of the article.