← Search

Bond Ladders and Optimal Portfolios

Kenneth L. Judd¹; Felix Kübler; Karl Schmedders^2,3

¹ Hoover Institution · ² University of Zurich · ³ Swiss Finance Institute

We analyze complex bond portfolios within the framework of a dynamic general equilibrium asset-pricing model. Equilibrium bond portfolios are nonsensical and imply a trading volume that vastly exceeds observed trading volume on financial markets. Instead, portfolios that combine bond ladders with a market portfolio of equity assets are nearly optimal investment strategies. The welfare loss of these simple investment strategies, when compared to the equilibrium portfolio, converges to zero as the length of the bond ladder increases. This article, therefore, provides a rationale for naming bond ladders as a popular bond investment strategy.

DOI

10.1093/rfs/hhr074

Volume

24 (12)

Pages

4123-4166

Language

en

Export

BibTeX

Sources

openalex crossref