Pricing and constructing international government bond portfolios

• 成果类型: Article
• 署名作者: Randl, Otto; Simion, Giorgia; Zechner, Josef
• 署名单位: Vienna University of Economics & Business
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2025.104152
• 发表日期: 2025
• 关键词: International government bond portfolios; Bond risk premia; stochastic discount factor

摘要

This paper derives a stochastic discount factor for currency-hedged government bonds of developed markets by projecting returns onto the unconditional mean-variance efficient (UMVE) portfolio. Priced risks of international bonds differ fundamentally from those of currencies. The UMVE portfolio achieves a Sharpe ratio over twice the average of individual markets, with the market price of risk peaking during crises and periods with high inflation dispersion. While bond returns exhibit a strong factor structure, common sources of variation are only weakly connected to priced risks. Hedging unpriced risks in naive or factor-based strategies significantly improves Sharpe ratios, even under portfolio weight constraints.