Crisis-Robust Bond Portfolios

Marie Brière () and Ariane Szafarz

No 07-030.RS, Working Papers CEB from Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB)

Abstract: This paper defines a “crisis-robust portfolio” that satisfies the minimal crisis-to-quiet time volatility ratio. This type of portfolio is less demanding for the investor than a regime-wise asset allocation. Although general, the concept of a crisis-robust portfolio is especially pertinent when applied to the bond market, which offers a flight-to-quality trade-off during crises (all volatilities increase but most correlations decrease). Using three categories of bonds (sovereign, investment grade corporate, and high yield corporate) in the U.S. and Eurozone for the period 1998-2007, we demonstrate the composition of crisis-robust portfolios and discuss the stabilizing role played by low-quality bonds during crises.

Keywords: financial crisis; portfolio management; bonds; fly-to-quality. (search for similar items in EconPapers)
JEL-codes: G11 G15 N20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-rmg
Date: 2007-10
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http://www.solvay.edu/EN/Research/Bernheim/documents/wp07030.pdf First version, 2007 (application/pdf)

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Working Paper: Crisis-robust bond portfolios
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Persistent link: http://EconPapers.repec.org/RePEc:sol:wpaper:07-030

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