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Bond Portfolio Strategy Simulations: A Critique

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  • Bierwag, G. O.
  • Kaufman, George

Abstract

In recent years, a number of studies have been published evaluating alternative bond portfolio strategies. These studies basically simulate risk-return characteristics for a variety of strategies designed for use by financial institutions. Typical strategies considered include portfolios of bonds that have laddered or barbell (dumbbell) maturity structures. In laddered strategies, bonds are spaced evenly among a number of consecutive maturities, while in barbell strategies, bonds are concentrated in short and long maturities. The results of these studies tend to differ and conflict. For example, in a recent article in this journal, Fogler, Groves, and Richardson (FGR) conclude that “dumbbell portfolio strategies are not as efficient as indicated by previous analyses.” Among the previous studies to which they refer is one by Watson, who concluded that “portfolios split between a spaced group of short maturity bonds and a longer investment security” (barbell portfolios) are most efficient. Similar results are reported by Wolf and by Bradley and Crane.

Suggested Citation

  • Bierwag, G. O. & Kaufman, George, 1978. "Bond Portfolio Strategy Simulations: A Critique," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(3), pages 519-525, September.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:03:p:519-525_00
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    Cited by:

    1. George G. Kaufman, 1980. "Duration, Planning Period, And Tests Of The Capital Asset Pricing Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 3(1), pages 1-9, March.
    2. Francis X. Diebold & Lei Ji & Canlin Li, 2006. "A Three-Factor Yield Curve Model: Non-Affine Structure, Systematic Risk Sources and Generalized Duration," Chapters, in: Lawrence R. Klein (ed.), Long-run Growth and Short-run Stabilization, chapter 9, Edward Elgar Publishing.
    3. Zura Kakushadze & Juan Andrés Serur, 2018. "151 Trading Strategies," Springer Books, Springer, number 978-3-030-02792-6, February.
    4. Jess B. Yawitz & William J. Marshall, 1981. "The Shortcomings Of Duration As A Risk Measure For Bonds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 4(2), pages 91-101, June.

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