Department of Economics and Business Economics

Expected Business Conditions and Bond Risk Premia

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DOI

In this article, I study the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. I 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.
Original languageEnglish
JournalJournal of Financial and Quantitative Analysis
Volume52
Issue4
Pages (from-to)1667-1703
ISSN0022-1090
DOIs
Publication statusPublished - 2017

    Research areas

  • Bond risk premia, Expected business conditions, Predictability, Economic value, Expectations hypothesis, Time-varying risk premia

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