Department of Economics and Business Economics

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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages48
Publication statusPublished - 5 Sep 2016
SeriesCREATES Research Papers

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