Bond Risk Premia and the ”Return Forecasting Factor”

Agustin Gutierrez, Constantino Hevia and Martin Sola

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: The return forecasting factor is a linear combination of forward rates that seems to predict one-year excess bond returns of bond of all maturities better than traditional measures obtained from the yield curve. If this single factor actually captures all the relevant fluctuations in bond risk premia, then it should also summarize all the economically relevant variations in excess returns considering different holding periods. We find that it does not. We conclude that including the return forecasting factor as the main driver of risk premia in a term structure model, as has been suggested, is not supported by the data.

Keywords: : Excess returns; bond risk premia; return forecasting factor; affine term structure models. (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-10
New Economics Papers: this item is included in nep-fmk, nep-for and nep-upt
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https://www.utdt.edu/download.php?fname=_153988078452259600.pdf (application/pdf)

Related works:
Journal Article: Bond risk premia and the return forecasting factor (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2018_04

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