Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123166
Authors: 
Bauer, Michael D.
Hamilton, James D.
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5541
Abstract: 
A consensus has recently emerged that a number of variables in addition to the level, slope, and curvature of the term structure can help predict interest rates and excess bond returns. We demonstrate that the statistical tests that have been used to support this conclusion are subject to very large size distortions from a previously unrecognized problem arising from highly persistent regressors and correlation between the true predictors and lags of the dependent variable. We revisit the evidence using tests that are robust to this problem and conclude that the current consensus is wrong. Only the level and the slope of the yield curve are robust predictors of excess bond returns, and there is no robust and convincing evidence for unspanned macro risk.
Subjects: 
yield curve
spanning
bond returns
small-sample bias
robust inference
JEL: 
E43
E44
E47
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.