Abstract
We examine the risk and return characteristics of fundamental weighting schemes for developed, emerging, and frontier government bond markets and compare these to market-capitalization-weighted indexes. We document positive excess returns for the investment grade sample only when currency risks are not hedged, suggesting that fundamentals might be more important for currency rather than bond returns. For emerging and frontier markets, we find positive excess returns for fundamental weighting schemes, although not always statistically significant. The excess returns from fundamental weighting schemes for government bonds can be explained by standard factors from equity, currency, or bond markets.
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Acknowledgements
We would like to thank seminar participants of the University of Neuchatel for helpful comments. Swinkels is also affiliated with Robeco Institutional Asset Management. The views expressed in this paper do not necessarily represent the views of Robeco or any of its subsidiaries. Part of this paper was written when Swinkels was affiliated with Norges Bank Investment Management.
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Piljak, V., Swinkels, L. Fundamental indexation for developed, emerging, and frontier government bond markets. J Asset Manag 18, 405–420 (2017). https://doi.org/10.1057/s41260-017-0045-8
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DOI: https://doi.org/10.1057/s41260-017-0045-8