Exploring the benefits of international government bond portfolio diversification strategies

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We use the Bayesian approach of Wang(1998) to examine the diversification benefits of investing in international government bonds. We find that no short selling constraints substantially reduce but do not eliminate the diversification benefits when only investing in G7 government bonds with different maturities. There are significant diversification benefits when using the G7 bonds, an inflation-linked bond index, and emerging market bonds even in the presence of no short selling constraints. The superior performance is driven by the emerging markets bonds. We also find that the diversification benefits vary across different economic states.
LanguageEnglish
Pages1-15
Number of pages15
JournalEuropean Journal of Finance
Volume25
Issue number1
Early online date20 Mar 2018
DOIs
Publication statusPublished - 31 Jan 2019

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Portfolio diversification
Diversification benefits
Bond portfolio
Diversification strategy
Government bonds
Emerging markets
Investing
Short selling
Maturity
Economics
Bayesian approach
Inflation

Keywords

  • international diversification,
  • international government bonds
  • Bayesian analysis

Cite this

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abstract = "We use the Bayesian approach of Wang(1998) to examine the diversification benefits of investing in international government bonds. We find that no short selling constraints substantially reduce but do not eliminate the diversification benefits when only investing in G7 government bonds with different maturities. There are significant diversification benefits when using the G7 bonds, an inflation-linked bond index, and emerging market bonds even in the presence of no short selling constraints. The superior performance is driven by the emerging markets bonds. We also find that the diversification benefits vary across different economic states.",
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Exploring the benefits of international government bond portfolio diversification strategies. / Fletcher, Jonathan; Paudyal, Krishna; Santoso, Timbul.

In: European Journal of Finance, Vol. 25, No. 1, 31.01.2019, p. 1-15.

Research output: Contribution to journalArticle

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