Emerging Markets Inflation-Linked Bonds
We investigate the added value of inflation-linked bonds in an investment portfolio. Recently, several studies questioned the added value of inflation-linked bonds based on empirical analyses on developed markets. We extend the cross-section of countries with a set of nine emerging markets and conclude that for many of these countries the inclusion of inflation linked bonds improves the risk-return characteristics of investment portfolios. We also document that inflation-linked bond returns correlate more with realized inflation than nominal bonds, even on the short run. Hence, investors that invest in nominal bonds and equities should also allocate a significant amount to inflation-linked bonds. Furthermore, our mean-variance spanning tests indicate that US investors that already invest in emerging markets nominal bonds and emerging markets equities benefit from adding emerging markets inflation-linked bonds to their investment portfolio.
|allocation, bonds, emerging debt, emerging markets, fixed income, inflation|
|Erasmus Research Institute of Management|
|ERIM Report Series Research in Management|
|Please use the SSRN link in the right upperhand corner to access the Open Access full-text file available at SSRN.|
|Organisation||Erasmus Research Institute of Management|
Swinkels, L.A.P. (2012). Emerging Markets Inflation-Linked Bonds (No. ERS-2012-004-F&A). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/31879