Bond Risk Premia
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Bond Risk Premia
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Author : John Howland Cochrane
language : en
Publisher:
Release Date : 2002
Bond Risk Premia written by John Howland Cochrane and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Bonds categories.
This paper studies time variation in expected excess bond returns. We run regressions of annual excess returns on forward rates. We find that a single factor predicts 1-year excess returns on 1-5 year maturity bonds with an R2 up to 43%. The single factor is a tent-shaped linear function of forward rates. The return forecasting factor has a clear business cycle correlation: Expected returns are high in bad times, and low in good times, and the return-forecasting factor forecasts long-run output growth. The return-forecasting factor also forecasts stock returns, suggesting a common time-varying premium for real interest rate risk. The return forecasting factor is poorly related to level, slope, and curvature movements in bond yields. Therefore, it represents a source of yield curve movement not captured by most term structure models. Though the return-forecasting factor accounts for more than 99% of the time-variation in expected excess bond returns, we find additional, very small factors that forecast equally small differences between long term bond returns, and hence statistically reject a one-factor model for expected returns
Bond Risk Premia
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Author : Harald Tolleshaug
language : en
Publisher:
Release Date : 2009
Bond Risk Premia written by Harald Tolleshaug and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
Forecasting the expected returns on bonds with increasing certainty is wanted from all rational investors in the fixed income markets. The potential for higher returns increase with the ability to forecast expected returns, through better trading payoffs and improved hedging and risk management. The expectations hypothesis was long prevailing in the academical litterature. It stated that the rational investor was expected to require zero or at least a constant excess return on bonds with long maturity over short maturity. This is equal to no time varying risk premiums. It is however reasonable for the rational investor to have time varying risk preferences based on the economic situation and outlook for the future, as described by Cochrane (1999). Thus, bonds with different maturity may be priced with different risk in an efficient market, and accordingly have time varying risk premiums. The expectations hypothesis has thus been rejected. This has been manifested through the classical studies of Fama and Bliss (1987) as well as Campbell and Shiller (1991). These studies modelled predictions of bond returns on specific maturities, with a R2 up to 18%. In a new and original approach, Cochrane and Piazzesi (2005) models a single-factor that predicts bond returns of any maturity, with a R2 up to 44%, more than doubled from the studies mentioned above. This is done on the same dataset as Fama and Bliss (1987) used and would be a big discovery within the field, if the model can be accepted across time and datasets. I test the model of Cochrane and Piazzesi (2005) based on the framework that these used originally, as well as new tests they have provided as response to critique of the model. So far, no other paper has rejected this model on all these dimensions. I use very well accepted data, and reject the model in every dimension tested. This paper is thus the rejection of the Cochrane and Piazzesi (2005) single-factor bond forecasting model.
A Beta Based Framework For Lower Bond Risk Premia
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Author : Stefano Nobili
language : en
Publisher:
Release Date : 2008
A Beta Based Framework For Lower Bond Risk Premia written by Stefano Nobili and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
Bond Risk Premia And Realized Jump Volatility
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Author : Jonathan H. Wright
language : en
Publisher:
Release Date : 2007
Bond Risk Premia And Realized Jump Volatility written by Jonathan H. Wright and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Bonds categories.
Corporate Bond Risk Premia
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Author : Christian Speck
language : en
Publisher:
Release Date : 2013
Corporate Bond Risk Premia written by Christian Speck and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This paper investigates the holding period risk premia of U.S. corporate and Treasury bonds. Using excess return regressions, two priced risk factors are derived from yield and macroeconomic data: a priced term risk factor and a priced credit risk factor explain half of the variation in one-year corporate and Treasury excess returns. The information of the term risk factor is not represented by major yield characteristics but is a hidden risk factor whereas the credit risk factor is not hidden. The term risk premium is earned primarily for exposure to inflation and the yield level and the credit risk premium is earned for an exposure to real growth and the credit spread level. The regression results are usefull for the specification of the market prices of risk in affine credit term structure models: The two-factor representation of the risk premium suggests a rank restriction on the market prices of risk and an additional pricing factor to capture the hidden property of term risk.
Time Series And Cross Section Variation Of Bond Risk Premia
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Author : Niloofar Sahebalzamany
language : en
Publisher:
Release Date : 2018
Time Series And Cross Section Variation Of Bond Risk Premia written by Niloofar Sahebalzamany and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
Macro Factors In Bond Risk Premia
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Author : Sydney C. Ludvigson
language : en
Publisher:
Release Date : 2005
Macro Factors In Bond Risk Premia written by Sydney C. Ludvigson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Bonds categories.
Empirical evidence suggests that excess bond returns are forecastable by financial indicators such as forward spreads and yield spreads, a violation of the expectations hypothesis based on constant risk premia. But existing evidence does not tie the forecastable variation in excess bond returns to underlying macroeconomic fundamentals, as would be expected if the forecastability were attributable to time variation in risk premia. We use the methodology of dynamic factor analysis for large datasets to investigate possible empirical linkages between forecastable variation in excess bond returns and macroeconomic fundamentals. We find that several common factors estimated from a large dataset on U.S. economic activity have important forecasting power for future excess returns on U.S. government bonds. Following Cochrane and Piazzesi (2005), we also construct single predictor state variables by forming linear combinations of either five or six estimated common factors. The single state variables forecast excess bond returns at maturities from two to five years, and do so virtually as well as an unrestricted regression model that includes each common factor as a separate predictor variable. The linear combinations we form are driven by both "real" and "inflation" macro factors, in addition to financial factors, and contain important information about one year ahead excess bond returns that is not captured by forward spreads, yield spreads, or the principal components of the yield covariance matrix.
Predictability Of Bond Risk Premia With An Affine Term Structure Model
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Author : Sibel Korkmaz
language : en
Publisher:
Release Date : 2016
Predictability Of Bond Risk Premia With An Affine Term Structure Model written by Sibel Korkmaz and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
A Beta Based Framework For Lower Bond Risk Premia
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Author : Stefano Nobili
language : en
Publisher:
Release Date : 2008
A Beta Based Framework For Lower Bond Risk Premia written by Stefano Nobili and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Government securities categories.
Revisiting The Predictability Of Bond Risk Premia
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Author : Daniel L. Thornton
language : en
Publisher:
Release Date : 2009
Revisiting The Predictability Of Bond Risk Premia written by Daniel L. Thornton and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
This paper investigates the source of predictability of bond risk premia by means of long-term forward interest rates. We show that the predictive ability of forward rates could be due to the high serial correlation and cross-correlation of bond prices. After a simple reparametrization of models used to predict spot rates or excess returns, we find that forward rates exhibit much less predictive power than previously recorded. Furthermore, our economic value analysis indicates that there are no economic gains to mean-variance investors who use the predictions of these models in a stylized dynamic asset allocation strategy.