Does Fixed Income Buffer against Fraud Shocks?

Steven James Lee
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Steven James Lee: School of Business, Northcentral University, La Jolla, CA 92037, USA

JRFM, 2021, vol. 14, issue 10, 1-22

Abstract: Counterparty risk in the form of investment fraud damages a retiree’s nest egg. Does fraud negatively impact portfolios that are both stock and bond-heavy equally? This study uses Monte Carlo analysis within the Trinity Study framework to determine the average reduction in portfolio success of a retiree who experiences fraud. Findings suggest that each incidence of fraud results in a loss of three percentage points in retirement success. However, portfolios containing some bonds (75/25, 50/50, and 25/75) outperform all equity (and all bond) allocations, particularly when fraud is present. On average, each incident of fraud reduces the chance the victim will enjoy a successful retirement by nearly 3%. Various limitations, implications, and future research possibilities are discussed.

Keywords: fraud; fraud shocks; retirement; portfolio success; Monte Carlo (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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