Main Article Content
Research background: Institutional investors such as: commercial banks, pension funds, and insurance companies are constantly looking for low-risk stable investment opportunities, whereas one of the solutions can be a simulated portfolio. This research takes a look at the incentive to invest in government debt portfolios, as it can outperform the returns of deposit accounts.
Purpose of the article: This study considers several classic methods of portfolio constriction and includes the basis of debt instruments that have not been a research topic for a long period of time. At the same time, this paper analyzes the classic methods of modern portfolio theory with a Sharpe ratio as an indicator of efficiency.
Methods: The constructed portfolio consists of four elements from different countries: two government obligations and two bond indexes, aiming to employ international diversification. All the data was collected for the period of 12 years in order to represent the consequences of accrued recessions.
Findings & Value added: The past two severe financial crises created a higher demand for stable investments, and more investors are ready to compromise a higher return for it. There-fore, the results of this paper represent a simulation of low-risk hedge fund portfolio construction with the use of highly rated debt instruments.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Amenc, N., & Martellini, L. (2002). Portfolio optimization and hedge fund style allocation decisions. SSRN Electronic Journal. doi: 10.2139/ssrn.305006.
Benczur, P. (2002). Identifying sovereign bond risks. SSRN Electronic Journal. doi: 10.2139/ssrn.296237.
Bernoth, K., von Hagen, J., & Schuknecht, L. (2012). Sovereign risk premiums in the European government bond market. Journal of International Money and Finance, 31(5). doi: 10.1016/j.jimonfin.2011.12.006.
Bodie, Z., Kane, A., & Marcus, A. (2013). Essentials of investments. New York: McGraw-Hill/Irwin.
Brennan, M. (2018). Capital asset pricing model. In New Palgrave Dictionary of Economics. Palgrave Macmillan.
Brooks, C., & Kat, H. (2002). The statistical properties of hedge fund index returns and their implications for investors. Journal of Alternative Investments, 5(2). doi: 10.3905/jai.2002.319053.
Caks, J. (1977). The coupon effect on yield to maturity. Journal of Finance, 32(1). doi: 10.2307/2326906.
Canada – Economic Indicators (2018). Retrieved from https://tradingeconomics. com/canada/indicators.
Chow, T., Hsu, J., Kuo, L., & Li, F. (2014). A study of low-volatility portfolio construction methods. Journal of Portfolio Management, 40(4). doi: 10.3905/jpm.2014.40.4.089.
Claessens, S., Klingebiel, D., & Schmukler, S. (2007). Government bonds in domestic and foreign currency: the role of institutional and macroeconomic factors. Review of International Economics, 15(2).doi: 10.1111/j.1467-9396 .2007.00682.x.
Damodaran, A. (2010). Into the abyss: what if nothing is risk free? SSRN Electronic Journal. doi: 10.2139/ssrn.1648164.
De Santis, G., & Gerard, B. (1998). How big is the premium for currency risk? Journal of Financial Economics, 3(49).
Eling, M., & Schuhmacher, F. (2007). Does the choice of performance measure influence the evaluation of hedge funds? Journal of Banking & Finance, 31(9). doi: 10.1016/j.jbankfin.2006.09.015.
Fraś, A. (2018). The relation between management fees and the mutual funds` performance in Poland in 2015.Oeconomia Copernicana, 9(2). doi: 10.24136/10.24136/oc.2018.013.
French, K., Schwert, G., & Stambaugh, R. (1987). Expected stock returns and volatility. Journal of Financial Economics, 19(1). doi: 10.1016/0304-405x(87)90026-2.
Gennaioli, N., Martin, A., & Rossi, S. (2013). Banks, government bonds, and default: what do the data say? SSRN Electronic Journal. doi: 10.2139/ssrn.2308340.
Giamouridis, D., & Vrontos, I. (2005). Hedge fund portfolio construction: a comparison of static and dynamic approaches. SSRN Electronic Journal. doi: 10.2139/ssrn.682384.
Hawawini, G. (1984). On the relationship between Macaulay's bond duration and the term to maturity. Economics Letters, 16(3-4). doi: 10.1016/0165-1765(84)90185-x.
Hennessee Fixed Income Index (2018). Retrieved from http://www.hennesse egroup. com/indices/returns/strategy/fixedincome.html.
Hopewell, M., & Kaufman, G. (2018). Bond price volatility and term to maturity: a generalized respecification. In G. Hawawini (Ed.). Bond Duration and Immunization. Taylor Francis.
Hosseini, A., Wang, J., & Hosseini, S. (2013). A recurrent neural network for solving a class of generalized convex optimization problems. Neural Networks, 44. doi: 10.1016/j.neunet.2013.03.010.
Kiley, M., & Roberts, J. (2017). Monetary policy in a low interest rate world. Brookings Papers on Economic Activity, 1. doi: 10.1353/eca.2017.0004.
Lamm, R. (2003). Asymmetric returns and optimal hedge fund portfolios. Journal of Alternative Investments, 6(2). doi: 10.3905/jai.2003.319088.
Lhabitant, F. (2001). Assessing market risk for hedge funds and hedge funds portfolios. SSRN Electronic Journal. doi: 10.2139/ssrn.268527.
Lim, A., & Zhou, X. (2002). Mean-variance portfolio selection with random parameters in a complete market. Mathematics of Operations Research, 27(1). doi: 10.1287/moor.18.104.22.1687.
Lo, A., & MacKinlay, A. (1988). Stock market prices do not follow random walks: evidence from a simple specification test. Review of Financial Studies, 1(1). doi: 10.1093/rfs/1.1.41.
Machina, M., & Rothschild, M. (2008). Risk. In The New Palgrave Dictionary of Economics. Palgrave Macmillan.
Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1). doi: 10.2307/2975974.
Merton, R. (1974). On the pricing of corporate debt: the risk structure of interest rates. Journal of Finance, 29(2). doi: 10.1111/j.1540-6261.1974.tb03058.x.
Meluzín, T., Balcerzak, A.P., Pietrzak, M. B., Zinecker, M., & Doubravský, K. (2018a). The impact of rumours related to political and macroeconomic uncertainty on IPO success: evidence from a qualitative model. Transformations in Business & Economics, 17(2)(44).
Meluzín, T., Zinecker, M., Balcerzak, A.P., Doubravský, K., Pietrzak, M. B., & Dohnal, M. (2018b), The timing of initial public offerings – non-numerical model based on qualitative trends. Journal of Business Economics and Management, 19(1).doi: 10.3846/jbem.2018.1539.
Meluzín, T., Pietrzak, M. B., Balcerzak, A. P., Zinecker, M., Doubravský, K., & Dohnal, M. (2017). Rumours related to political instability and their impact on IPOs: the use of qualitative modeling with incomplete knowledge. Polish Journal of Management Studies, 16(2). doi: 10.17512/pjms.2017.16.2.15.
Pogue, G. (1970). An extension of the Markowitz portfolio selection model to include variable transactions' costs, short sales, leverage policies and taxes. Journal of Finance, 25(5). doi: 10.2307/2325576.
Szumilo, N., Bienert, S., Łaszkiewicz, E., Pietrzak, M. B. & Balcerzak, A. P. (2018). The real alternative? A comparison of German real estate returns with bonds and stocks. Journal of Property Investment & Finance, 36(1). doi: 10.1108/JPIF-02-2017-0012.
S&P U.S. Treasury TIPS 1-3 Year Index - S&P Dow Jones Indices. (2018). Retrieved from https://us.spindices.com/indices/fixed-income/sp-us-treasury-tips-1-3-year-index.
Sharpe, W. (1966). Mutual fund performance. Journal of Business, 39(S1). doi: 10.1086/294846.
Vukovic, D. B., Hanic, E., & Hanic, H. (2017). Financial integration in the European Union — the impact of the crisis on the bond market. Equilibrium. Quarterly Journal of Economics and Economic Policy, 12(2). doi: 10.24136/eq.v12i1.10.
Vyklyuk, Y., Vukovic, D., & Jovanovic, A (2013). Forex prediction with neural network: USD/EUR currency pair. Actual Problem of Economics, 10(148).
World Government Bonds – Investing.com. (2018). Retrieved from https://www.investing.com/rates-bonds/world-government-bonds.
World Savings Account Rates by Country- Compare Savings Accounts around the world. (2018). Retrieved from https://www.deposits.org/savings-accounts.html.