Abstract
This article defines a “crisis robust” portfolio that satisfies the minimal crisis-to-quiet time volatility ratio. This type of portfolio is less demanding for the investor than a regime-wise asset allocation. Although general, the concept of a crisis-robust portfolio is especially pertinent when applied to the bond market, which offers a flight-to-quality trade-off during crises (all volatilities increase but most correlations decrease). Using three categories of bonds (sovereign, investment-grade corporate, and high-yield corporate) in the U.S. and Eurozone for the 1998–2007 period, we demonstrate the composition of crisis-robust portfolios and discuss the stabilizing role played by low-quality bonds during crises.
TOPICS: Fixed-income portfolio management, financial crises and financial market history, volatility measures, developed markets [US, Europe]
- © 2008 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