问题如下：
Emma Gerber and Juliette Petit are senior and junior credit portfolio managers, respectively, for a European money management firm. They are discussing credit management strategies and preparing for an annual meeting with a major client.
One of their high-yield bond holdings is a 10-year bond issued by EKN Corporation (EKN). The bond has a price of 91.82, a modified duration of 8.47, and a spread duration of 8.47. For this bond, Petit speculates on the effects of an interest rate increase of 20 bps and, because of a change in its credit risk, an increase in the EKN bond’s credit spread of 20 bps. Petit comments that because the modified duration and credit spread duration of the EKN bond are equal, the bond’s price will not change (all else being equal) in response to the interest rate and credit spread changes.
Gerber explains the concept of empirical duration to Petit and makes the following points.
Point 1: A common way to calculate a bond’s empirical duration is to run a regression of its price returns on changes in a benchmark interest rate.
Point 2: A bond’s empirical duration tends to be larger than its effective duration.
Point 3: The price sensitivity of high-yield bonds to interest rate changes is typically higher than that of investment-grade bonds.
Exhibit 1 shows information for three BBB rated bonds issued by a large automotive company. Gerber asks Petit to interpret the data in the table and notes that the current interest rate environment is characterized by a positively sloped yield curve.
Petit makes three observations about these bonds.
Observation 1: We should buy Bond 1 because the difference between its Z-spread and OAS is the largest.
Observation 2: We prefer Bond 1 to Bond 3 because Bond 1 has a greater Z-spread.
Observation 3: Bond 2 is a non-callable bond because its option-adjusted spread (OAS) is similar to the bond’s other three spread levels.
Petit observes that credit spread levels for bonds are currently higher than normal, and she recommends that the firm increase its investment in high-yield bonds. She mentions three reasons for increasing high-yield bond exposure.
Reason 1: The portfolio’s liquidity will improve.
Reason 2: Defaults on high-yield bonds will be relatively low.
Reason 3: The firm’s view is that economic growth will be greater than the consensus forecast.
Petit develops investment recommendations for a currency-hedged portfolio of US and European corporate bonds. She expects US interest rates to decline relative to European interest rates. Furthermore, the spread curve for US corporate bonds indicates that the average spread of five-year BB bonds exceeds the average spread of two-year BB bonds by +90 bps. Petit expects the difference between average credit spreads for these two sectors to narrow to +50 bps.
Gerber is looking at the high-yield portfolio and investigates secondary market characteristics that would increase the portfolio’s liquidity.
On another topic, Gerber is concerned that the scenario analysis models for the credit portfolio underestimate tail risk, and she asks Petit how to address this issue. Petit responds, "We can change the expected correlations between prices in our models to generate more extremely unusual outcomes."
Gerber is preparing for the annual meeting with one of the firm’s largest clients. The client wants to explore more international credit investing. Gerber anticipates that the client will ask about differences between investing in emerging markets (EM) credits and developed markets credits. To address this potential inquiry, Gerber plans to emphasize the following differences.
Difference 1: Commodity producers and banks represent a higher proportion of EM indexes than of developed market indexes.
Difference 2: Total or partial government ownership of EM issuers is common, which results in a higher average recovery rate for defaulted senior unsecured bonds for EM markets than for developed markets.
Difference 3: Compared with developed markets, the credit quality of EM issuers tends to be more concentrated at the very high and very low portions of the credit spectrum.
Gerber also is preparing a more general discussion about domestic versus international portfolio management. In Gerber’s written report, Petit identifies three statements that she wants to check for accuracy.
Statement 1: Currency risk in global credit portfolios can be mitigated by using currency swaps or by investing in credits denominated in currencies that are pegged or tightly managed by the government.
Statement 2: Liquidity concerns for EM credits are mitigated by their frequency of trading and modest legal risk.
Statement 3: Sectors tend to perform similarly across regions.
Which of Gerber’s points about empirical duration is correct?
选项：
A.Point 1
B.Point 2
C.Point 3
解释：
A is correct.
A bond’s empirical duration is often estimated by running a regression of its price returns on changes in a benchmark interest rate.
不好意思请问point 2 还是没太看懂，为啥不是更大呢
