Integrating ESG in factor-based investing in the sovereign bond markets: a momentum approach

Abstract

The group report analyses the joint impact of Momentum, Value, Size, and Low Volatility in factor-based investing in sovereign bond emerging and developed markets, develops an ESG factor and assesses its affect across all strategies. This paper explores different Momentum based strategies in sovereign emerging bond markets. Results show that cross-sectional momentum strategies can exhibit meaningful risk-adjusted returns above the market. The alternative market time-series strategy explored in this paper revealed to capture dynamics of asset class preferences. The ESG integration improved the risk-return performances, reducing the presence of outliers from the universe, thus suggesting ESG materiality for fixed income investing.