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Does Fixed Income Buffer against Fraud Shocks?

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  • Steven James Lee

    (School of Business, Northcentral University, La Jolla, CA 92037, USA
    Department of Finance, Real Estate and Law, School of Business Administration, California State Polytechnic University, Pomona, CA 91768, USA)

Abstract

Counterparty risk in the form of investment fraud damages a retiree’s nest egg. Does fraud negatively impact portfolios that are both stock and bond-heavy equally? This study uses Monte Carlo analysis within the Trinity Study framework to determine the average reduction in portfolio success of a retiree who experiences fraud. Findings suggest that each incidence of fraud results in a loss of three percentage points in retirement success. However, portfolios containing some bonds (75/25, 50/50, and 25/75) outperform all equity (and all bond) allocations, particularly when fraud is present. On average, each incident of fraud reduces the chance the victim will enjoy a successful retirement by nearly 3%. Various limitations, implications, and future research possibilities are discussed.

Suggested Citation

  • Steven James Lee, 2021. "Does Fixed Income Buffer against Fraud Shocks?," JRFM, MDPI, vol. 14(10), pages 1-22, October.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:10:p:479-:d:653644
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    References listed on IDEAS

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