TY - JOUR T1 - Sovereign Default Concentration Risk Mitigation<br/>in Global Bond Indices JF - The Journal of Index Investing SP - 56 LP - 61 DO - 10.3905/jii.2012.3.2.056 VL - 3 IS - 2 AU - Chunlan Wang Y1 - 2012/08/31 UR - https://pm-research.com/content/3/2/56.abstract N2 - This article reviews the fundamental shift in the market perception of risk factors in fixed-income investments. The sovereign spread risk has increased substantially in recent years and contributes an even bigger portion than corporate credit spread in some investment universes, like euro treasury fixed-income indices. The major drivers of sovereign spread include economic and financial systematic factors and issuer-specific solvency factors. The concentration of sovereign risk has become a critical concern to the investors in the investment of global treasury securities. This article reports major testing results using an in-house intensity-based sovereign default risk model. The model has been used to evaluate the diversification effect of weighting mechanisms using GDP and fiscal strength as risk indicators.TOPICS: Fixed-income portfolio management, VAR and use of alternative risk measures of trading risk, global ER -