Conditional Risk Premia in International Government Bond Markets PDF Download
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Author: Joëlle Miffre
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
The paper estimates conditional pricing models for 11 international government bonds and shows that, while local instruments capture the change in the bonds' risks, global instruments model the variation in the factor risk premia. Altogether the changes in the factor risk premium capture 78.25% of the bonds' predictability, while the dynamics in the betas account for less than 1%. One cannot conclude however that the conditional models are well-specified as parameter instability and relatively large mean squared errors were uncovered. These results extend for the first time some of the evidence from the equity market of Ferson and Harvey (1993), Harvey (1995) and Ghysels (1998) to the bond market.
Author: Joëlle Miffre
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
The paper estimates conditional pricing models for 11 international government bonds and shows that, while local instruments capture the change in the bonds' risks, global instruments model the variation in the factor risk premia. Altogether the changes in the factor risk premium capture 78.25% of the bonds' predictability, while the dynamics in the betas account for less than 1%. One cannot conclude however that the conditional models are well-specified as parameter instability and relatively large mean squared errors were uncovered. These results extend for the first time some of the evidence from the equity market of Ferson and Harvey (1993), Harvey (1995) and Ghysels (1998) to the bond market.
Author: Martin Lettau
Publisher:
ISBN:
Category : Carry trades (Foreign exchange)
Languages : en
Pages : 54
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Book Description
The downside risk CAPM (DR-CAPM) can price the cross section of currency returns. The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns. Correctly accounting for this variation is crucial for the empirical performance of the model. The DR-CAPM can jointly explain the cross section of equity, commodity, sovereign bond and currency returns, thus offering a unified risk view of these asset classes. In contrast, popular models that have been developed for a specific asset class fail to jointly price other asset classes.
Author: Peter N. Smith
Publisher:
ISBN:
Category : Capital investments
Languages : en
Pages : 42
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Author: Tom Arild Fearnley
Publisher:
ISBN:
Category :
Languages : en
Pages : 263
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Book Description
The dissertation consists of three papers dedicated to empirical tests of a multivariate conditional international Capital Asset Pricing Model (CAPM). The aim is to evaluate to what extent such a model can explain stock and government bond returns in the US, Japan and Europe over the last 10 to 15 years, and whether the model can be usefully employed in global tactical asset allocation. The starting point is the international CAPM of Adler and Dumas (1983), which is made conditional through a multivariate GARCH-in-mean specification. The additional assumption that local inflation rates are zero or deterministic reduces inflation risk premia to currency risk premia. Data are analyzed at weekly frequency. The first paper introduces regime switching GARCH parameters. The second paper adds government bonds to the analysis, and evaluates four different models for the price of market risk. The third paper introduces regime switching prices of risk and intercept terms.
Author: Stefano Nobili
Publisher:
ISBN:
Category : Government securities
Languages : en
Pages : 68
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Author: Iryna Kaminska
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ISBN:
Category :
Languages : en
Pages :
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Author: Kerstin Bernoth
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Category :
Languages : en
Pages :
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Author: Kerstin Bernoth
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ISBN:
Category :
Languages : en
Pages : 37
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Author: Bruno H. Solnik
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ISBN:
Category : Bonds
Languages : en
Pages : 40
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Author: Magnus Dahlquist
Publisher:
ISBN:
Category :
Languages : en
Pages :
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We identify local and global factors across international bond markets that are poorly spanned by the traditional level, slope and curvature factors but have strong forecasting power for future bond excess returns. Local and global factors are jointly significant predictors of bond returns, where the global factor is closely linked to US bond risk premia and international business cycles. Motivated by our results, we estimate a no-arbitrage affine term structure model for each country in which movements in risk premia are driven by one local and one global factor. Yield loadings for the two factors are estimated to be close to zero while shocks to risk premia account for a small fraction of yield variance. This suggests that the cross-section of yields conveys little information about the return-forecasting factors. We show that shocks to global risk premia cause off-setting movements in expected returns and expected future short-term interest rates, leaving current yields little affected. Furthermore, correlations between international bond risk premia have increased over time, indicating an increase in integration between markets. Affine model, local and global factors, time-varying risk premia
