The Effect of Real Return Bond on Asset Allocation

The Canada Treasury began issuing 30-year maturity inflation-protected securities with principal and interest payments linked to the Canadian Consumer Price Index from the year of 1991. In our study, we examined whether and how the availability of inflation protected securities might affect investors' asset allocation decisions such as whether investors should hold a different mix of stocks and bonds in the presence of inflation protected bonds of the period from 2001 to 2011. Our study found out that when we add inflation-protected bond into investment portfolio with an investment horizon of both one and five years, at least in Canada market, there is not so much improvement as some of the literatures mentioned especially in mid-term or long-term investment.