Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129711
Authors: 
De Rezende, Rafael B.
Year of Publication: 
2015
Series/Report no.: 
Sveriges Riksbank Working Paper Series 295
Abstract: 
I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond returns. The main predictor factors are associated with point expectations of real economic activity, uncertainty about real GDP growth, and downside and upside risks in housing starts and the unemployment rate. In addition, factors provide information about bond risk premia variation that is largely unrelated to that contained in the Cochrane-Piazzesi and Ludvigson-Ng factors. These results are confirmed statistically and economically in an out-of-sample setting and hold when factors are constructed using macroeconomic data available in real-time. All together, these findings suggest that risks to macroeconomic fundamentals are an important source of fluctuations in the US government bond market.
Subjects: 
expectations hypothesis
term structure of interest rates
ex ante macroeconomic risks
bond risk premia
macro risk factors
JEL: 
G12
G17
G11
E43
E44
Document Type: 
Working Paper

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