Integrated stock-bond portfolio management
JOURNAL OF INVESTMENT STRATEGIES(2023)
Abstract
This paper proposes a stock-bond portfolio selection model that naturally integrates market risk and credit risk via the principles of CreditMetrics. Conditional valueat-risk is adopted as the risk measure for portfolio selection since bond returns are usually skewed. Both simulations and backtestings show that conditional value-at-risk is an appropriate risk measure for stock-bond portfolio selection and that by providing more flexible and stable investment opportunities the integrated portfolio outperforms the portfolios that consider stocks and/or bonds separately.
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Key words
stock-bond portfolio,CreditMetrics,market risk,credit risk,conditional value-at-risk (CVaR)
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