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Time-Varying Pricing of Risk in Sovereign Bond Futures Returns

Author

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  • Barbora Malinska

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)

Abstract

We examine time-varying explanatory power of realized moments on subsequent bond futures excess returns using more than 12 years of high-frequency data from U.S. and German sovereign bond markets. We detect realized volatility and realized kurtosis to carry valuable information for next-day open-close excess returns on the U.S. market which is not priced in traditional bond return predictors such as term or default spreads. Most importantly, we reveal the bond excess return predictability to be significantly dynamic and to increase during crisis period. Whereas the realized volatlity reveals to have negative effect on next-day excess returns, effect of realized kurtosis is switching from positive effect in the time of 2007-2009 financial crisis to negative values after 2014.

Suggested Citation

  • Barbora Malinska, 2020. "Time-Varying Pricing of Risk in Sovereign Bond Futures Returns," Working Papers IES 2020/7, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Mar 2020.
    • Handle: RePEc:fau:wpaper:wp2020_07
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6225
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    More about this item

    Keywords

    Realized moments; bond pricing; risk-return trade-off; high-frequency data; time-varying coeffcients;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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