Time-varying excess returns on UK government bonds: A non-linear approach

Mean reversion in stock index futures markets: A nonlinear analysis

“…Section 5 reports the results of summary statistics and univariate unit root tests applied to basis data, cointegration tests applied to a regression involving the spot price and the futures price, linearity tests applied to the basis data, and the estimation results from employing nonlinear models to characterize the basis of the S&P 500 and the FTSE 100 indices. In Section 6 Monte Carlo integration methods are used to calculate the half-lives implied by estimated nonlinear models for the basis, further examining how the nonlinear estimation results can improve the profession's understanding of the dynamics 2 The literature related to the present study is very large and includes, among others, Blank (1991), Brennan and Schwartz (1990), Chan (1992), Dwyer et al (1996), Figlewski (1984), Mougoue (1997a, 1997b), Gao and Wang (1999), Kawaller (1991), Kawaller, Koch, and Koch (1987), Klemkosky and Lee (1991), Lekkos and Milas (2001), Ramaswamy (1988), Miller, Muthuswamy, andWhaley (1994), Modest and Sundaresan (1983), Parhizgari and de Boyrie (1997), Sarno and Valente (2000), Stoll and Whaley (1990), Brorsen (1993, 1994), Yadav et al (1994). 3 See, e.g., Dumas (1994) and Sofianos (1993) on this point.…”

Detecting time-variation in corporate bond index returns: A smooth transition regression model

“…In particular, term spread tracks a time-varying term premium in expected returns: low around NBER business cycle peaks and high near troughs. Elton et al (1996) as well as Lekkos and Milas (2004) provide evidence that ex ante term spreads explain government bond returns.…”

“…Using a STR model, Lekkos and Milas (2004) show that the behavior of UK government bonds differs in economic regimes: the term structure of interest rates controls how bond returns switch between regimes. Guidolin and Timmermann (2006) find government bond returns vary across bull and bear markets in a Markov chain model.…”

“…The main studies include Keim and Stambaugh (1986) and French (1989, 1993), Campbell and Ammer (1993), Lekkos and Milas (2004), Abhyankar andGonzalez (2009), Kessler andScherer (2009) and Wright and Zhou (2009). Thus, in our setting, we employ five risk factors that have shown relatively high significance as explanatory variables in the presence of risk factors in the corporate bond pricing literature.…”

Valuation ratios and price deviations from fundamentals

“…2 For other recent non-linear models in finance seeBrooks and Garrett (2002),Lekkos and Milas (2004) andMcMillan (2004).3 This is also whyAckert and Hunter (1999) andMadsen and Milas (2003) employ regime-switching formulations of the price-dividend relationship based on managerial dividend behavior and levels of inflation, respectively, although their focus and models differ from ours.…”