Adding global bonds to global equity porfolios can improve the performance of a global frontier, especially for “lower” risk portfolio, correct or incorrect ?
correct.
Why especially for “lower” risk portfolio ? not for “higher” risk portfolio ?
Probably because of the “bend” (convexity) of the efficient frontier. Think how it’s more sharply-upward sloping for lower std dev’s (x-axis). So, your relative improvement’s better at lower measured risk levels… of course, this is true for any asset class. Do you have a reading & page #?
Probably because of the “bend” (convexity) of the efficient frontier. Think how it’s more sharply-upward sloping for lower std dev’s (x-axis). So, your relative improvement’s better at lower measured risk levels… of course, this is true for any asset class. Do you have a page #?
It is in 2009 Schweser’s Practice Exam V2 Exam 1 Q5A (3rd statements). Sorry I am using 2009 version.
OK, unfortunately that volume’s in my office (I’m a re-taker). Will take a look next week. p.s. too early for this s***
I took a look at P.365~368 of V3 of CFAI text & Exhibit 8 & 9. It seems that the performances of “lower” risk portfolios are especially improved. But I can not find this exact statement.
Right, I guess they’re looking at the chart at bottom of p. 368. The global bond-and-equity efficient frontier dominates the global equity-only frontier at every std deviation < about 18%. The “gap” between the two is more pronounced at lower risk levels - which is consistent with Schweser’s assertion. Maybe once more folks are awake in the States, there’ll be other views on this…