Out-of-Sample Predictions of Bond Excess Returns and Forward Rates: An Asset Allocation Perspective

Daniel Thornton and Giorgio Valente ()

The Review of Financial Studies, 2012, vol. 25, issue 10, 3141-3168

Abstract: This article investigates the out-of-sample predictability of bond excess returns. We assess the economic value of the forecasting ability of empirical models based on long-term forward interest rates in a dynamic asset allocation strategy. The results show that the information content of forward rates does not generate systematic economic value to investors. Indeed, these models do not outperform the no-predictability benchmark. Furthermore, their relative performance deteriorates over time. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Date: 2012
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