Overseas unspanned factors and domestic bond returns

Andrew Meldrum (), Marek Raczko () and Peter Spencer ()
Additional contact information
Andrew Meldrum: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Peter Spencer: University of York

No 618, Bank of England working papers from Bank of England

Abstract: Using data on government bond yields in Germany and the United States, we show that overseas unspanned factors — constructed from the components of overseas yields that are uncorrelated with domestic yields — have significant explanatory power for subsequent domestic bond returns. This result is remarkably robust, holding for different sample periods, as well as out of sample. Shocks to overseas unspanned factors have large and persistent effects on domestic yield curves. Dynamic term structure models that omit information about foreign bond yields are therefore likely to be misspecified.

Keywords: Return-forecasting regressions; dynamic term structure models (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2016-09-30
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... 2BCE38513A1DC59BB180 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0618

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().