Expected Business Conditions and Bond Risk Premia

Jonas Nygaard Eriksen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper studies the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. We show that expected business conditions consistently affect excess bond returns and that the inclusion of expected business conditions in standard predictive regressions improve forecast performance relative to models using information derived from the current term structure or macroeconomic variables. The results are confirmed in a real-time out-of-sample exercise, where the predictive accuracy of the models is evaluated both statistically and from the perspective of a mean-variance investor that trades in the bond market.

Keywords: Bond risk premia; expected business conditions; predictability; economic value; expectations hypothesis; time-varying risk premia (search for similar items in EconPapers)
JEL-codes: E43 E44 E47 G11 G12 (search for similar items in EconPapers)
Pages: 54
Date: 2015-09-24
New Economics Papers: this item is included in nep-for, nep-mac and nep-upt
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https://repec.econ.au.dk/repec/creates/rp/15/rp15_44.pdf (application/pdf)

Related works:
Journal Article: Expected Business Conditions and Bond Risk Premia (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2015-44

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