Varying risk premia in international bond markets

Kessler, Stephan; Scherer, Bernd

doi:10.1016/j.jbankfin.2009.02.007

Cited by 40 publications

(24 citation statements)

References 45 publications

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“…Cochrane and Piazzesi (2005) find that the forward curve can be used to predict future Treasury bond returns. Kessler and Scherer (2009) extend this finding to six other bond markets. Interestingly, Kalev and Inder (2006) find unexploited information in the term structure that is not incorporated into expectations.…”

Section: Literature Reviewsupporting

confidence: 60%

“…Cochrane and Piazzesi (2005) and Kessler and Scherer (2009) find that the forward curve can predict future bond returns, while Mishkin (1997, 1998) and Ang et al (2006) find that the slope of the yield curve can forecast future rates of interest. Ilmanen (1995Ilmanen ( , 1997, Ilmanen and Sayood (2002) and Papageorgiou and Skinner (2002) all find that active strategies that are based on or placed in combination with time varying information in the term structure can form viable strategies for bond investors.…”

Section: Introductionmentioning

confidence: 99%

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Term structure information and bond strategies

González

Skinner

Agyei-Ampomah

2012

Rev Quant Finan Acc

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We examine term structure theories by using a novel approach. We form bond investment strategies based on different theories of the term structure in order to determine which strategy performs best. When using a manipulation-proof performance measure, we find that consistent with prior literature, an active strategy that is based on time varying term premiums can indeed form the basis of a successful bond strategy that outperforms an unbiased expectation inspired passive bond buy and hold strategy. This is true, however, for an earlier time period when the literature first made this claim. In a later time period, we find that the passive buy and hold strategy is significantly superior to all active strategies. This result is confirmed by statistical tests and it suggests that once it became known that an active strategy based on time varying term premiums could outperform a passive buy and hold strategy, the markets adjusted and arbitraged away this opportunity. Overall, it appears that the unbiased expectation hypothesis is the most likely explanation of the behaviour of the term structure during more recent times. This is because economically and statistically significant superior performance cannot be achieved if one uses information from the forward curve or the term structure as a guide to adjusting bond portfolios in response to changes in the term premium.

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Section: Literature Reviewsupporting

confidence: 60%

Section: Introductionmentioning

confidence: 99%

Term structure information and bond strategies

González

Skinner

Agyei-Ampomah

2012

Rev Quant Finan Acc

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“…Consequently, he argues that a significant share of the reduction in nominal interest rates observed in the last 15 years is due to reduced inflation uncertainty brought about by improved monetary policy. Finally, Kessler and Scherer (2009) use forward rates and estimate CP factors to study time-varying risk premia in a set of seven countries. 4 The authors use swap rates to study the predictability of the 1-year zero coupon rate using forward rates.…”

Section: Introductionmentioning

confidence: 99%

International evidence on bond risk premia

Sekkel

2011

Journal of Banking & Finance

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“…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.…”

Section: Pricing Of Corporate Bondsmentioning

confidence: 99%