The Role of Time-Varying Rare Disaster Risks in Predicting Bond Returns and Volatility
Rangan Gupta (),
Tahir Suleman () and
Mark Wohar ()
No 201770, Working Papers from University of Pretoria, Department of Economics
This paper aims to provide empirical evidence to the theoretical claim that rare disaster risks affect government bond market movements. Using a nonparametric quantiles-based methodology, we show that rare disaster-risks affect only volatility, but not returns, of tenyear government bond of the US over the monthly period of 1918:01 to 2013:12. In addition, the predictability of volatility holds for the majority of the conditional distribution of the volatility, with the exception of the extreme ends. Moreover, in general, similar results are also obtained for long-term government bonds of an alternative developed country (UK) and an emerging market (South Africa).
Keywords: Bond Returns and Volatility; Rare Disasters; Nonparametric Quantile Causality (search for similar items in EconPapers)
JEL-codes: C22 C58 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ore and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201770
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