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Multi-level factor analysis of bond risk premia

Dukpa Kim (), Yunjung Kim () and Bak Yuhyeon
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Bak Yuhyeon: Department of Economics, Korea University, Seongbuk-gu, Seoul, 02841 Korea

Studies in Nonlinear Dynamics & Econometrics, 2017, vol. 21, issue 5, 19

Abstract: Earlier studies in the finance literature show that macroeconomic fundamentals can predict excess bond returns. We employ a multi-level factor model to estimate global and sectoral factors separately and show that (i) the real factors possess most important predictive power existing in the panel; (ii) the financial factors might have some predictive power but less than the real factors; (iii) the inflation factors have almost no predictive power and (iv) the excess bond returns have a countercyclical component.

Keywords: common factors; excess bond returns; predictive regression (search for similar items in EconPapers)
JEL-codes: E0 E4 G10 G12 (search for similar items in EconPapers)
Date: 2017
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