International Bond Risk Premia

Magnus Dahlquist and Henrik Hasseltoft

Journal of International Economics, 2013, vol. 90, issue 1, 17-32

Abstract: We find evidence for time-varying risk premia across international bond markets. Local and global factors jointly predict returns. The global factor is closely linked to US bond risk premia and international business cycles. Movements in the global factor seem to drive risk premia and expected short-term interest rates in opposite directions. We consider an affine term-structure model in which risk premia are driven by one local and one global factor. Shocks to these factors account for only a small fraction of yield variance and the cross-section of yields conveys little information about the factors. Finally, correlations between international bond risk premia have increased over time, suggesting an increase in integration between markets.

Keywords: Affine model; Local and global factors; Time-varying risk premia (search for similar items in EconPapers)
JEL-codes: E43 F31 G12 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (87)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:90:y:2013:i:1:p:17-32

DOI: 10.1016/j.jinteco.2012.11.008

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