 Optimal allocation of government bond funds through the business cycle. Is money smart?Ricardo Laborda and Fernando Muñoz International Review of Economics & Finance, 2016, vol. 45, issue C, 46-67 Abstract: We characterize the optimal portfolio decision of an investor who maximizes the conditional expected utility of the return on his or her portfolio, given an investment opportunity set consisting of a U.S. sovereign bond mutual fund and its benchmark. Our results show that, on average, the investor should overweight U.S. government bond funds during recession periods when the “level” factor of interest and the output gap are low and the “curvature” factor of the U.S. yield curve, investor sentiment and the VIX are high, these being related to high U.S. bond risk premia. Important differences in optimal portfolio performance measures across bond fund managers through the business cycle have a great impact on the investor's welfare. However, we find almost no evidence that funds that receive more money subsequently beat the market. Keywords: Portfolio choice; U.S. government bond fund; State variables; Recession; Smart money (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:46-67 DOI: 10.1016/j.iref.2016.04.008 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.