Bond Indexes and International Asset Indexes: Understanding the Differences

False Statements about Bond Indexes and International Asset Indexes

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Question

Which of the following statements about bond indexes and international asset indexes is FALSE?

Answers

A. Global equity indexes were created to alleviate problems with local indexes (sample selection and weighting).

B. Low correlation among monthly country indexes supports international diversification.

C. Some of the reasons that a bond index is more difficult to create than an equity index are that the universe of bonds is less than the universe of stocks and it is difficult to price the bonds because of the lack of continuous trade data.

D. Investment-grade bond indexes have a higher correlation than high-yield bond indexes.

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Explanations

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A. B. C. D.

This statement contains correct and incorrect points. A bond index is more difficult to create than an equity index because the universe of bonds is greater than the universe of stocks. The point about pricing difficulties is correct.

The other statements are true.

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