Question: Do you see some un-ethical practices as well with the Indexes?
Answer: Yes, some time for performance-based portfolio construction. Portfolio managers ask the companies to make the index which are lower in performance. And portfolio managers benchmarked against this to show higher performance and get the good compensation fee.
Question: Why bond index construction/maintenance is considered more complex in fixed income market than the equity market?
Answer: Creating, and maintaining of a bond market index is more difficult because of below reasons - Broad Universe: Bonds has broader universe and much more diverse than that of stocks. For example bond universe include o U.S. Treasury issues o Agency series o Municipal bonds o Corporate bonds for various segments like Industrials Utilities Financials o Ratings like high-quality, AAA-rated bonds to bonds in default. - Different Coupon: Each bond could have different coupon. - Different maturity: Each bond have different maturities - Provisions: Bond has call and put provisions, as well as by sinking funds. - Change in bond universe: The universe of bonds changes constantly. A company usually will have one common equity stock issue, while, same corporation will have several bond issues outstanding at any point in time, with different characteristics of the issues like maturities, sinking funds, and call features. - Volatility in price across issues: As same corporation can issue multiple bonds but each can have different prices.
Question: Does duration and convexity affect the price volatility?
Answer: Yes, duration and convexity of the bond affect the bond price.
Question: Can you give example of major sectors of the global bond market?
Answer: Below are the example of global bond market - U.S. investment-grade bonds (including Treasury bonds). - U.S. high-yield bonds. - International government bonds.