Do investors care about inflation risk? Evidence from global bond portfolio allocation

Luis Ceballos and Oscar Ng

Economics Letters, 2024, vol. 243, issue C

Abstract: We investigate whether mutual funds adjust their portfolio allocations in global bond markets in response to country-level measures of inflation risk, specifically inflation volatility risk and inflation cyclicality. Our findings indicate that portfolio managers decrease allocations in countries with higher inflation volatility risk, relative to their overall portfolio exposure to inflation volatility risk. In contrast, inflation cyclicality does not exert a significant influence on global portfolio allocation decisions. We strengthen our results by analyzing funds according to their geographic investment mandates, fund characteristics, and portfolio composition.

Keywords: Fixed income; Inflation risk; Portfolio allocation (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524004397

DOI: 10.1016/j.econlet.2024.111955

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