The Changing Role of Nominal Government Bonds in Asset Allocation

John Campbell

Scholarly Articles from Harvard University Department of Economics

Abstract: The covariance between nominal bonds and stocks has varied considerably over recent decades and has even switched sign. It has been predominantly positive in periods such as the late 1970s and early 1980s when the economy has experienced supply shocks and the central bank has lacked credibility. It has been predominantly negative in periods such as the 2000s when investors have feared weak aggregate demand and deflation. Nominal bonds are attractive to short-term equity investors when these bonds are negatively correlated with stocks, as has been the case during the 2000s and especially during the downturn of 2007–2008. They are attractive to conservative long-term investors when long-term inflationary expectations are stable, for then these bonds are close substitutes for inflation-indexed bonds that are riskless in the long term.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Geneva Risk and Insurance Review

Downloads: (external link)
http://dash.harvard.edu/bitstream/handle/1/10884856/Campbell_Changing.pdf (application/pdf)

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:hrv:faseco:10884856

Access Statistics for this paper

More papers in Scholarly Articles from Harvard University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Office for Scholarly Communication ().