Diversification Benefits of Treasury Inflation Protected Securities: An Empirical Puzzle

Abdullah Mamun, Nuttawat Visaltanachoti
2006 Social Science Research Network  
This paper takes a new look into the benefits of Treasury Inflation Protected Security (TIPS) to investors. We test whether TIPS enhances the risk return characteristics of investors' portfolio using data from April 1997 to August 2005. We show from conditional spanning test that adding TIPS to any diversified portfolio provide diversification benefit to investors. We also show that this result can be supported using UK inflation Linked Gilts from January 1981 to August 2005. This confirms the
more » ... This confirms the prediction of economic theory that indexed bonds are important for investors who are vulnerable to inflation risk, holds under different economic and inflationary environment.
doi:10.2139/ssrn.885062 fatcat:pfo2335mrjdg7doco54hucoibu