Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Sveriges Riksbank (Central Bank of Sweden) Working Paper Series, Sveriges Riksbank (Central Bank of Sweden)

No 295:
Risks in macroeconomic fundamentals and excess bond returns predictability

Rafael B. De Rezende ()

Abstract: I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond returns. The main predictor factors are associated with point expectations of real economic activity, uncertainty about real GDP growth, and downside and upside risks in housing starts and the unemployment rate. In addition, factors provide information about bond risk premia variation that is largely unrelated to that contained in the Cochrane-Piazzesi and Ludvigson-Ng factors. These results are confirmed statistically and economically in an out-of-sample setting and hold when factors are constructed using macroeconomic data available in real-time. All together, these findings suggest that risks to macroeconomic fundamentals are an important source of fluctuations in the US government bond market.

Keywords: expectations hypothesis; term structure of interest rates; ex ante macroeconomic risks; bond risk premia; macro risk factors.; (follow links to similar papers)

JEL-Codes: E43; E44; G11; G12; G17; (follow links to similar papers)

65 pages, February 1, 2015

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

rap_wp295_150211.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:rbnkwp:0295 This page was generated on 2015-02-11 12:52:40