The Changing Role of Nominal Government Bonds in Asset Allocation

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The Changing Role of Nominal Government Bonds in Asset Allocation

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Title: The Changing Role of Nominal Government Bonds in Asset Allocation
Author: Campbell, John Y.
Citation: Campbell, John Y. 2009. The changing role of nominal government bonds in asset allocation. Geneva Risk and Insurance Review 34(2): 89-104.
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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.
Published Version: doi:10.1057/grir.2009.7
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:10884856
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