Fundamental indexation for developed, emerging, and frontier government bond markets

We examine the risk and return characteristics of fundamental weighting
schemes for developed, emerging, and frontier government bond markets and compare
these to market-capitalization-weighted indexes. We document positive excess returns for
the investment grade sample only when currency risks are not hedged, suggesting that
fundamentals might be more important for currency rather than bond returns. For emerging
and frontier markets, we find positive excess returns for fundamental weighting schemes,
although not always statistically significant. The excess returns from fundamental weighting
schemes for government bonds can be explained by standard factors from equity, currency,
or bond markets.