Investor sentiment and bond risk premia

Ricardo Laborda and Jose Olmo

Journal of Financial Markets, 2014, vol. 18, issue C, 206-233

Abstract: This article studies the statistical significance of the set of market sentiment variables proposed by Baker and Wurgler (2006) to predict the risk premium on U.S. sovereign bonds. We show that these variables can be summarized in one single market sentiment factor similar in spirit to the single-return forecasting factor proposed by Cochrane and Piazzesi (2005). Our findings reveal that this factor has predictive power beyond that contained in the yield curve and benchmark macroeconomic factors. The predictive power of this variable is time-varying, exhibiting more relevance during recession periods.

Keywords: Bond risk premia; Forward prices; Investor sentiment; Bootstrap standard errors; Wald tests (search for similar items in EconPapers)
JEL-codes: E4 G11 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (43)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:18:y:2014:i:c:p:206-233

DOI: 10.1016/j.finmar.2013.05.008

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