Variants of Consumption-Wealth Ratios and Predictability of U.S. Government Bond Risk Premia: Old is still Gold

Oguzhan Cepni, Rangan Gupta and Mark Wohar ()

No 201912, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper compares the ability of alternative consumption-wealth ratios, based on constant parameter (cay), Markov-switching (cayMS ) and time-varying parameter (cayTVP) cointegration estimation of the consumption function, for predicting in- and out-of-sample movements of quarterly excess returns of U.S. government bonds over 1953:Q2 to 2015:Q3. Our findings show that after controlling for standard financial and macroeconomic factors, cay outperforms the cayMS and cayTVP in predicting the path of excess returns on bonds. Implications of our results for academics, investors and policymakers are discussed.

Keywords: Bond risk premia; Consumption-wealth ratios; In-sample predictability; Out-of-sample Forecasts (search for similar items in EconPapers)
JEL-codes: C22 C53 G12 G17 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2019-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201912

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