A1937
Title: GDP-linked bonds as a new asset class
Authors: Nikolas Topaloglou - Athens University of Economics and Business Research Center (Greece) [presenting]
Abstract: Using stochastic spanning tests without any distributional assumptions on returns, it is shown that the two classes of GDP-linked bonds, floaters and linkers, are not spanned by a broad benchmark set of stocks, bonds, and cash for a wide range of design specifications. Thus they provide a new asset class with significant diversification benefits for investors, with proportional investments to these novel instruments estimated in the double digits and an increase in Sharpe ratios by up to 0.37 over the benchmark. The benefits depend on the market risk premium, but they persist for a wide range of premia estimates from existing literature and are robust to a randomized test. Using the generalised method of moments regressions, the finance and macro determinants of GDP-linked bond returns are documented.
