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Diversification benefits for bond portfolios


  • Wassim Dbouk
  • Lawrence Kryzanowski


Finance research has focused primarily on the diversification of stock portfolios. Various metrics are used herein to assess the diversification benefits, and the optimal bond portfolio sizes (PSs) for investment opportunity (IO) sets differentiated by issuer type, credit ratings and term-to-maturity. While PSs of 25-40 bonds appear optimal for the marginal reduction of dispersion with increasing PS, larger (smaller) PSs are optimal if the investor is concerned about left tail weight (positive skewness or reward-to-downside risk). Although the marginal reduction of dispersion is less than 1% beyond these optimal PSs, much potential diversification benefits still remain unrealized for many of the IO sets studied herein.

Suggested Citation

  • Wassim Dbouk & Lawrence Kryzanowski, 2009. "Diversification benefits for bond portfolios," The European Journal of Finance, Taylor & Francis Journals, vol. 15(5-6), pages 533-553.
  • Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:533-553
    DOI: 10.1080/13518470902890758

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    References listed on IDEAS

    1. Laura Veldkamp & Stijn Van Nieuwerburgh, 2005. "Information Acquisition and Portfolio Underdiversification," 2005 Meeting Papers 77, Society for Economic Dynamics.
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