Simulating Historical Inflation-Linked Bond Returns

34 Pages Posted: 9 Jan 2017 Last revised: 16 Apr 2018

See all articles by Laurens Swinkels

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Date Written: April 3, 2018


Empirical research on the benefits of investing in inflation-linked bonds usually relies on a limited number of observations due to the relatively recent introduction of these assets. We estimate models for the break-even inflation rate and use these to create hypothetical inflation-linked bond returns. We compare these with the return on actual inflation-linked bond returns on a recent sample and find that surveys of professional forecasters and moving average models perform best. We confirm these findings for a sample of 19 international inflation-linked bond markets. Using surveys of professional forecasters, we create hypothetical inflation-linked bond return series for 41 countries starting in 1987 or later depending on the availability of nominal bond markets. These simulated series can be used by asset allocation researchers, but an average correlation of 0.7 means that the simulated series are at best reasonable proxies for real data on inflation-linked bond returns. This cautionary note is also relevant to appreciate existing research using simulated inflation-linked bond returns.

Keywords: Asset allocation, Bonds, Fixed income, Inflation-linked bonds, Inflation, Investing, Simulation

JEL Classification: C52, C58, C63, E31, G11, G12, G15, H63

Suggested Citation

Swinkels, Laurens, Simulating Historical Inflation-Linked Bond Returns (April 3, 2018). Available at SSRN: or

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

Robeco Quantitative Investments ( email )

Rotterdam, 3000
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

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