The Failure of Asset Allocation – Bonds Are An Imperfect Hedge

July 24, 2012
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(This article was first published on Timely Portfolio, and kindly contributed to R-bloggers)

US investors were spoiled by US Treasuries which acted as a near perfect hedge to stocks during the 2008-2009 crisis.  However, in real crisis, bonds rarely offer any comfort, and asset allocation fails (see post Death Spiral of a Country and IMF paper Systemic Banking Crises Database: An Update; by Luc Laeven ... – IMF).  As a very timely example, we can examine Spain, which is not even to crisis level yet.

From TimelyPortfolio

In Spain, there is nowhere to hide, and allocation offers no comfort.

R code in Gist (click raw to copy/paste):

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