Factor Decomposition and Diversification in European Corporate Bond Markets
33 Pages Posted: 25 Aug 2010 Last revised: 12 Sep 2011
Date Written: August 8, 2011
In this paper we present an analysis of diversification strategies on portfolios of European corporate bonds. From the perspective of a U.S.-based investor we study whether mean-variance diversification strategies change as a result of the introduction of the European Economic and Monetary Union (EMU). Using a comprehensive and unique data set of European corporate bonds we show that country factors are more important than industry factors to describe the cross-section of European corporate bonds. In particular we find that in the Post-EMU period country factors remain important.
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