Bond Market Asymmetries across Recessions and Expansions: New Evidence on Risk Premia

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  • rp16_26

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This paper provides new evidence on bond risk premia by conditioning the classic Campbell-Shiller regressions on the business cycle. In expansions, we find mostly positive intercepts and negative regression slopes, but the results are completely reversed in recessions with negative intercepts and positive regression slopes. We reproduce these coefficients in a term structure model with business cycle dependent loadings in the market price of risk. This model also predicts excess returns in the right direction during expansions and recessions, whereas the Gaussian affine term structure model predicts excess returns for medium- and long-term bonds with the wrong sign during recessions.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider48
StatusUdgivet - 5 sep. 2016
SerietitelCREATES Research Papers
Nummer2016-26

    Forskningsområder

  • Bond return predictability, Business cycle variation in excess returns, Market price of risk, Zero-lower bound, Unspanned macroeconomic risk

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