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Do investors care about inflation risk? Evidence from global bond portfolio allocation

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  • Ceballos, Luis
  • Ng, Oscar

Abstract

We investigate whether mutual funds adjust their portfolio allocations in global bond markets in response to country-level measures of inflation risk, specifically inflation volatility risk and inflation cyclicality. Our findings indicate that portfolio managers decrease allocations in countries with higher inflation volatility risk, relative to their overall portfolio exposure to inflation volatility risk. In contrast, inflation cyclicality does not exert a significant influence on global portfolio allocation decisions. We strengthen our results by analyzing funds according to their geographic investment mandates, fund characteristics, and portfolio composition.

Suggested Citation

  • Ceballos, Luis & Ng, Oscar, 2024. "Do investors care about inflation risk? Evidence from global bond portfolio allocation," Economics Letters, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524004397
    DOI: 10.1016/j.econlet.2024.111955
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    References listed on IDEAS

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    More about this item

    Keywords

    Fixed income; Inflation risk; Portfolio allocation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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