Is a pure TIPS strategy truly risk free?

Paul J. Haensly

Review of Financial Economics, 2016, vol. 28, issue C, 1-20

Abstract: A Treasury Inflation-Protected Security (TIPS) is virtually risk free. As an obligation of the U.S. Treasury, it is mostly free of default risk. As an inflation-indexed security held to maturity, it is risk free in terms of purchasing power. However, investing in a TIPS-only portfolio for retirement is not risk free. This paper presents the results of a simulation analysis designed to evaluate the performance of a portfolio of inflation-indexed Treasury coupon bonds. This study demonstrates that significant shortfall risk exists for TIPS-only portfolios across a range of savings plans and the securities selection rules.

Keywords: Inflation-indexed bonds; TIPS; Shortfall risk; Portfolio management; Inflation (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:28:y:2016:i:c:p:1-20

DOI: 10.1016/j.rfe.2015.09.003

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