Diversification benefits for bond portfolios

Wassim Dbouk and Lawrence Kryzanowski

The European Journal of Finance, 2009, vol. 15, issue 5-6, 533-553

Abstract: Finance research has focused primarily on the diversification of stock portfolios. Various metrics are used herein to assess the diversification benefits, and the optimal bond portfolio sizes (PSs) for investment opportunity (IO) sets differentiated by issuer type, credit ratings and term-to-maturity. While PSs of 25-40 bonds appear optimal for the marginal reduction of dispersion with increasing PS, larger (smaller) PSs are optimal if the investor is concerned about left tail weight (positive skewness or reward-to-downside risk). Although the marginal reduction of dispersion is less than 1% beyond these optimal PSs, much potential diversification benefits still remain unrealized for many of the IO sets studied herein.

Keywords: diversification benefits; portfolio size; derived and realized dispersion; skewness; Sortino ratio; tail shape (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (7)

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DOI: 10.1080/13518470902890758

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