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Final published version
This paper uncovers that expected excess bond returns display a positive correlation with the slope of the yield curve (i.e., yield spread) in expansions but a negative correlation in recessions. We use a macro-finance term structure model with different market prices of risk in expansions and recessions to show that a very accommodating monetary policy in recessions is a key driver of this switch in return predictability.
Original language | English |
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Journal | Review of Financial Studies |
Volume | 34 |
Issue | 6 |
Pages (from-to) | 2773-2812 |
Number of pages | 40 |
ISSN | 0893-9454 |
DOIs | |
Publication status | Published - Jun 2021 |
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ID: 191240299