Real-time Bayesian learning and bond return predictability

Runqing Wan, Andras Fulop and Junye Li

Journal of Econometrics, 2022, vol. 230, issue 1, 114-130

Abstract: The paper examines statistical and economic evidence of out-of-sample bond return predictability for a real-time Bayesian investor who learns about parameters, hidden states, and predictive models over time. We find some statistical evidence using information contained in forward rates. However, such statistical predictability can hardly generate any economic value for investors. Furthermore, we find that strong statistical and economic evidence of bond return predictability from fully-revised macroeconomic data vanishes when real-time macroeconomic information is used. We also show that highly levered investments in bonds can improve short-run bond return predictability.

Keywords: Bayesian learning; Bond return predictability; Non-overlapping bond returns; Parameter uncertainty; Model combinations; Real-time macroeconomic information (search for similar items in EconPapers)
JEL-codes: C11 G11 G12 G17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:230:y:2022:i:1:p:114-130

DOI: 10.1016/j.jeconom.2020.04.052

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