Abstract
In this article, the authors apply Markowitz’s approach of portfolio selection to government bond portfolios. As a main feature of the analysis, the term structure models is used to estimate expected returns, return variances, and covariances of different bonds. The authors’ empirical study for the German market shows that a small number of risky bonds is sufficient to reach very promising predicted risk-return profiles. If the number of risky bonds in the portfolio is not too large and the term structure model does not contain more than two factors, these predictions are confirmed by the realized risk-return profiles.
TOPICS: Fixed-income portfolio management, portfolio construction
- © 2006 Pageant Media Ltd
Don’t have access? Click here to request a demo
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600