Bond Portfolio Laddering: A Mean-Variance Perspective

7 Pages Posted: 4 Dec 2015

See all articles by C. Sherman Cheung

C. Sherman Cheung

McMaster University

Clarence C.Y. Kwan

McMaster University

Sudipto Sarkar

McMaster University - Finance & Business Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

Abstract

A ladder strategy calls for the maturities of the bonds in a portfolio to be spread out evenly with an equal amount invested in each maturity. There is wide acceptance of bond laddering by retail investors as an appropriate approach to constructing bond portfolios. However, the coverage of bond laddering has been minimal in the academic literature, including journal articles and textbooks; in particular, there is no article which shows that a bond laddering strategy is optimal or consistent with rational economic behavior. This paper offers a rational explanation for bond laddering based on the meanvariance framework and the idea of bounded rationality.

Suggested Citation

Cheung, C. Sherman and Kwan, Clarence C.Y. and Sarkar, Sudipto, Bond Portfolio Laddering: A Mean-Variance Perspective (2010). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 20, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=2693109

C. Sherman Cheung (Contact Author)

McMaster University ( email )

School of Business
1280 Main Street W
Hamitlon, Ontario L8S 4M4
Canada

Clarence C.Y. Kwan

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Sudipto Sarkar

McMaster University - Finance & Business Economics ( email )

School of Business
1280 Main St. W.
Hamilton, ON L8S 4M4
Canada
905-525-9140 (Phone)
905-521-8995 (Fax)

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