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Exploring the benefits of international government bond portfolio diversification strategies

Author

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  • Jonathan Fletcher
  • Krishna Paudyal
  • Timbul Santoso

Abstract

We use the Bayesian approach of Wang (1998) to examine the diversification benefits of investing in international government bonds. We find that no short-selling constraints substantially reduce but do not eliminate the diversification benefits when only investing in G7 government bonds with different maturities. There are significant diversification benefits when using the G7 bonds, an inflation-linked bond index, and emerging market bonds even in the presence of no short-selling constraints. The superior performance is driven by the emerging markets bonds. We also find that the diversification benefits vary across different economic states.

Suggested Citation

  • Jonathan Fletcher & Krishna Paudyal & Timbul Santoso, 2019. "Exploring the benefits of international government bond portfolio diversification strategies," The European Journal of Finance, Taylor & Francis Journals, vol. 25(1), pages 1-15, January.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:1:p:1-15
    DOI: 10.1080/1351847X.2018.1450279
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    Cited by:

    1. Migliavacca, Milena & Goodell, John W. & Paltrinieri, Andrea, 2023. "A bibliometric review of portfolio diversification literature," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Attig, Najah & Guedhami, Omrane & Nazaire, Gregory & Sy, Oumar, 2023. "What explains the benefits of international portfolio diversification?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    3. Jonathan Fletcher & Elizabeth Littlejohn & Andrew Marshall, 2023. "Exploring the performance of US international bond mutual funds," The Financial Review, Eastern Finance Association, vol. 58(4), pages 765-782, November.

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