We examine the risk and return characteristics of fundamental weighting schemes for developed, emerging, and frontier government bond markets and compare these to market-capitalization-weighted indexes. We document positive excess returns for the investment grade sample only when currency risks are not hedged, suggesting that fundamentals might be more important for currency rather than bond returns. For emerging and frontier markets, we find positive excess returns for fundamental weighting schemes, although not always statistically significant. The excess returns from fundamental weighting schemes for government bonds can be explained by standard factors from equity, currency, or bond markets.

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doi.org/10.1057/s41260-017-0045-8, hdl.handle.net/1765/108174
Journal of Asset Management
Erasmus School of Economics

Piljak, V., & Swinkels, L. (2017). Fundamental indexation for developed, emerging, and frontier government bond markets. Journal of Asset Management, 18(5), 405–420. doi:10.1057/s41260-017-0045-8