The role of high-yield bonds in strategic asset allocation over the Great Recession
Journal: Investment Management and Financial Innovations (Vol.14, No. 3)Publication Date: 2017-12-05
Authors : Georgios Menounos; Constantinos Alexiou; Sofoklis Vogiazas;
Page : 270-279
Keywords : asset allocation; Black-Litterman model; global financial crisis; high-yield bonds;
Abstract
By utilizing a modified version of the Black-Litterman model, the authors explore the asset allocation to high-yield bonds based on an investor's risk profile. In so doing, the researchers use US data on high-yield bonds and over the period 2007β2013. The key finding relates to the strategic asset allocation to high-yield bonds in a simulated global market portfolio depending on an investor's risk tolerance. In particular, the share of high-yield bonds does not exceed 4.15% of total assets in a global market portfolio over the period 2007β2013, whilst the allocation remains relatively stable and small on a risk-adjusted basis, irrespective of an investor's risk profile or the phase of the business cycle. In simple terms, the results suggest that high-yield bonds do not seem to merit a favorable treatment in the asset allocation process relative to other financial instruments in a global market portfolio.
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Last modified: 2018-03-14 17:46:52