International bond diversification strategies: the impact of currency, country, and credit risk

Mats Hansson, Eva Liljeblom and Anders Loflund

The European Journal of Finance, 2009, vol. 15, issue 5-6, 555-583

Abstract: We investigate the incremental role of emerging market debt and corporate bonds in internationally diversified government bond portfolios. Contrary to earlier results, we find that international diversification among government bonds does not yield significant diversification benefits. This result is obtained using mean-variance spanning and intersection tests, with restrictions for short sales, both for currency unhedged and hedged internationally developed market government bonds. Currency hedged international corporate bonds in turn do offer some diversification benefits, and emerging market debt, in particular, significantly shifts the mean-variance frontier for a developed market investor. Since especially unconstrained mean-variance spanning and intersection tests can indicate significant diversification benefits, but lead to frontier portfolios with extreme weights, we also consider some ex-ante global government bond portfolio strategies. We find that passive global benchmarks such as GDP-weighed government bond portfolios perform quite well within developed countries.

Keywords: international bond diversification; mean-variance spanning and intersection; emerging market debt; corporate bond (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13518470902872376 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:555-583

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/13518470902872376

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().