The Influence of Political, Economic and Financial Risk on Expected Fixed Income Returns
Claude B. Erb
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Tadas E. Viskanta
First Chicago Investment Management Co.
Is there information in the commonly used indicators of country risk for expected global fixed income returns and volatility? We examine the information content in publicly available measures of political, financial and economic risk. We find that these ex-ante measures contain important information about the cross-section of expected fixed income and currency returns. Trading strategies based on the change in, and level of, these risk measures produce positive risk-adjusted returns. We find that the country risk measures are significantly correlated with international bond metrics, such as real yields. This is the final working paper version of our 1996 Journal of Fixed Income publication.
Number of Pages in PDF File: 30
Keywords: global bond strategies, predicting bond returns, trading strategies, interest rates, political risk, economic risk, financial risk, country risk, trading strategies, active management
JEL Classification: G15, G11, G12, F30working papers series
Date posted: October 25, 2005
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