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Multi-level factor analysis of bond risk premia

Author

Listed:
  • Kim Dukpa

    (Department of Economics, Korea University, Seongbuk-gu, Seoul, 02841 Korea)

  • Kim Yunjung

    (Department of Economics, Korea University, Seongbuk-gu, Seoul, 02841 Korea)

  • Bak Yuhyeon

    (Department of Economics, Korea University, Seongbuk-gu, Seoul, 02841 Korea)

Abstract

Earlier studies in the finance literature show that macroeconomic fundamentals can predict excess bond returns. We employ a multi-level factor model to estimate global and sectoral factors separately and show that (i) the real factors possess most important predictive power existing in the panel; (ii) the financial factors might have some predictive power but less than the real factors; (iii) the inflation factors have almost no predictive power and (iv) the excess bond returns have a countercyclical component.

Suggested Citation

  • Kim Dukpa & Kim Yunjung & Bak Yuhyeon, 2017. "Multi-level factor analysis of bond risk premia," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(5), pages 1-19, December.
    • Handle: RePEc:bpj:sndecm:v:21:y:2017:i:5:p:19:n:2
    DOI: 10.1515/snde-2015-0080
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    References listed on IDEAS

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    8. Jonathan H. Wright, 2011. "Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset," American Economic Review, American Economic Association, vol. 101(4), pages 1514-1534, June.
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    Cited by:

    1. Venetis, Ioannis & Ladas, Avgoustinos, 2022. "Co-movement and global factors in sovereign bond yields," MPRA Paper 115801, University Library of Munich, Germany.

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    More about this item

    Keywords

    common factors; excess bond returns; predictive regression;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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