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Author : Jonas Eriksen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (931 download)
Download or read book Expected Business Conditions and Bond Risk Premia written by Jonas Eriksen and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jonas N. Eriksen
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.:/5 (13 download)
Download or read book Expected Business Conditions and Bond Risk Premia written by Jonas N. Eriksen and published by . This book was released on 2018 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. We show that expected business conditions consistently affect excess bond returns and that the inclusion of expected business conditions in standard predictive regressions improve forecast performance relative to models using information derived from the current term structure or macroeconomic variables. The results are confirmed in a real-time out-of-sample exercise, where the predictive accuracy of the models is evaluated both statistically and from the perspective of a mean-variance investor that trades in the bond market.
Author : John Howland Cochrane
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (249 download)
Download or read book Bond Risk Premia written by John Howland Cochrane and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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
Author : Harald Tolleshaug
Publisher :
ISBN 13 :
Total Pages : 109 pages
Book Rating : 4.:/5 (767 download)
Download or read book Bond Risk Premia written by Harald Tolleshaug and published by . This book was released on 2009 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : Sydney C. Ludvigson
Publisher :
ISBN 13 :
Total Pages : 22 pages
Book Rating : 4.:/5 (255 download)
Download or read book Macro Factors in Bond Risk Premia written by Sydney C. Ludvigson and published by . This book was released on 2005 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : John H. Cochrane
Publisher : Now Publishers Inc
ISBN 13 : 1933019158
Total Pages : 117 pages
Book Rating : 4.9/5 (33 download)
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author : Lucio Sarno
Publisher :
ISBN 13 :
Total Pages : 77 pages
Book Rating : 4.:/5 (13 download)
Download or read book The Economic Value of Predicting Bond Risk Premia written by Lucio Sarno and published by . This book was released on 2016 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies whether the evident statistical predictability of bond risk premia translates into economic gains for investors. We propose a novel estimation strategy for a ne term structure models that jointly fits yields and bond excess returns, thereby capturing predictive information otherwise hidden to standard es- timations. The model predicts excess returns with high regressions R^2s and high forecast accuracy but cannot outperform the expectations hypothesis out-of-sample in terms of economic value, showing a general contrast between statistical and economic metrics of forecast evaluation. More specifically, the model mostly gener- ates positive (negative) economic value during times of high (low) macroeconomic uncertainty. Overall, the expectation hypothesis remains a useful benchmark for investment decisions in bond markets, especially in low uncertainty states.
Author : Delvin D. Hawley
Publisher :
ISBN 13 :
Total Pages : 460 pages
Book Rating : 4.3/5 (129 download)
Download or read book Industry-specific Characteristics of Cyclical Variations in the Yield Structure of Corporate Bonds written by Delvin D. Hawley and published by . This book was released on 1987 with total page 460 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Reuben A. Kessel
Publisher :
ISBN 13 :
Total Pages : 132 pages
Book Rating : 4.3/5 (97 download)
Download or read book The Cyclical Behavior of the Term Structure of Interest Rates written by Reuben A. Kessel and published by . This book was released on 1965 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Redouane Elkamhi
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (129 download)
Download or read book Time Varying Risk Premia in Corporate Bond Markets written by Redouane Elkamhi and published by . This book was released on 2008 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the link between corporate bond risk premia and equity returns in a large panel of corporate bond transaction data. In contrast to previous work, we find that a significant part of the time variation in bond risk premia can be explained by equity implied bond risk premium estimates. We also document a large time variation in the expected loss component of bond spreads. This component is related to total asset volatility, whereas the risk premium is related to systematic volatility. In addition, we show by means of linear regressions that augmenting the set of variables predicted by typical structural models with equity-implied bond default risk premia significantly increases explanatory power.
Author : Peter J. N. Sinclair
Publisher : Routledge
ISBN 13 : 1135179778
Total Pages : 402 pages
Book Rating : 4.1/5 (351 download)
Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author : Magnus Dahlquist
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (838 download)
Download or read book International Bond Risk Premia written by Magnus Dahlquist and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify local and global factors across international bond markets that are poorly spanned by the traditional level, slope and curvature factors but have strong forecasting power for future bond excess returns. Local and global factors are jointly significant predictors of bond returns, where the global factor is closely linked to US bond risk premia and international business cycles. Motivated by our results, we estimate a no-arbitrage affine term structure model for each country in which movements in risk premia are driven by one local and one global factor. Yield loadings for the two factors are estimated to be close to zero while shocks to risk premia account for a small fraction of yield variance. This suggests that the cross-section of yields conveys little information about the return-forecasting factors. We show that shocks to global risk premia cause off-setting movements in expected returns and expected future short-term interest rates, leaving current yields little affected. Furthermore, correlations between international bond risk premia have increased over time, indicating an increase in integration between markets. Affine model, local and global factors, time-varying risk premia
Author : Graham Elliott
Publisher : Princeton University Press
ISBN 13 : 0691140138
Total Pages : 566 pages
Book Rating : 4.6/5 (911 download)
Download or read book Economic Forecasting written by Graham Elliott and published by Princeton University Press. This book was released on 2016-04-05 with total page 566 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive and integrated approach to economic forecasting problems Economic forecasting involves choosing simple yet robust models to best approximate highly complex and evolving data-generating processes. This poses unique challenges for researchers in a host of practical forecasting situations, from forecasting budget deficits and assessing financial risk to predicting inflation and stock market returns. Economic Forecasting presents a comprehensive, unified approach to assessing the costs and benefits of different methods currently available to forecasters. This text approaches forecasting problems from the perspective of decision theory and estimation, and demonstrates the profound implications of this approach for how we understand variable selection, estimation, and combination methods for forecasting models, and how we evaluate the resulting forecasts. Both Bayesian and non-Bayesian methods are covered in depth, as are a range of cutting-edge techniques for producing point, interval, and density forecasts. The book features detailed presentations and empirical examples of a range of forecasting methods and shows how to generate forecasts in the presence of large-dimensional sets of predictor variables. The authors pay special attention to how estimation error, model uncertainty, and model instability affect forecasting performance. Presents a comprehensive and integrated approach to assessing the strengths and weaknesses of different forecasting methods Approaches forecasting from a decision theoretic and estimation perspective Covers Bayesian modeling, including methods for generating density forecasts Discusses model selection methods as well as forecast combinations Covers a large range of nonlinear prediction models, including regime switching models, threshold autoregressions, and models with time-varying volatility Features numerous empirical examples Examines the latest advances in forecast evaluation Essential for practitioners and students alike
Author : Antonio Diaz
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book What Drives Corporate Bond Risk Premia? Evidence from the CDS Market written by Antonio Diaz and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article studies the economic factors behind corporate default risk premia in Europe during the period 2006-2010. We employ information embedded in Credit Default Swap (CDS) contracts to quantify expected excess returns from the underlying bonds in market-wide default circumstances. We disentangle the compensation to investors for unexpected changes in the creditworthiness of the bond issuer from their remuneration for the risk that the bond's price will drop in the event of default. Our results show that the risk premia associated with systematic factors influencing default arrivals represent approximately 40% of total CDS spread (on median). These premia also exhibit a strong source of commonality; a single principal component explains approximately 88% of their joint variability. This factor significantly covaries with aggregate illiquidity and sovereign risk variables. Empirical evidence suggests a public-to-private risk transfer between sovereign credit spread and corporate risk premia. Finally, the compensation in the event of default is approximately 14 basis points of the total CDS spread, and a significant amount of jump-at-default risk may not be diversifiable.
Author : Lukas Wäger
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (81 download)
Download or read book Analysis of Bond Risk Premia written by Lukas Wäger and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The focus of this thesis is on bond return predictability and providing an empirical and economic understanding of bond risk premia. The thesis consists of an empirical analysis of time-varying bond risk premia along three major branches of the current term structure literature, namely yields-only, macro-finance and multi-currency term structure models. All these models belong to the well-known class of affine models introduced by Ang and Piazzesi (2003), whereas the latter two embed unspanned factors. Unspanned factors are state variables that have an effect on bond risk premia but do not span the cross-section of yields, as recently introduced by Duffee (2011), Joslin, Priebsch and Singleton (2011) and Boos (2011). The section concerning yields-only models contributes by providing evidence of three priced risk premia of bonds in the US market, extending the analysis of Cochrane and Piazzesi (2005) and Boos (2011). The section concerning macrofinance models adds to the new branch of models with unspanned macro factors and extends existing research by analyzing the effects of unspanned macro factors on risk premia beyond the level risk premium and extending into a broader and longer data set of macroeconomic variables. The section concerning multi-currency models firstly introduces unspanned factors into international models by taking mutually unspanned latent yield curve factors of domestic and foreign countries as state variables. The information in foreign yield curves is found to be partly unspanned by the domestic yield curve and improves bond return predictability beyond local models.
Author : Christian Speck
Publisher :
ISBN 13 :
Total Pages : 63 pages
Book Rating : 4.:/5 (13 download)
Download or read book Corporate Bond Risk Premia written by Christian Speck and published by . This book was released on 2013 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : Riccardo Rebonato
Publisher :
ISBN 13 : 1107165857
Total Pages : 781 pages
Book Rating : 4.1/5 (71 download)
Download or read book Bond Pricing and Yield Curve Modeling written by Riccardo Rebonato and published by . This book was released on 2018-06-07 with total page 781 pages. Available in PDF, EPUB and Kindle. Book excerpt: Rebonato provides an authoritative, clear, and up-to-date explanation of the cutting-edge innovations in affine modeling for government bonds, and provides readers with the precise tools to develop their own models. This book combines precise theory with up-to-date empirical evidence to build, with the minimum mathematical sophistication required for the task, a critical understanding of what drives the government bond market.
