Download This PaperThe Attention-Based Excess Bond Premium
72 Pages Posted: 5 Dec 2024 Last revised: 25 Nov 2025
Date Written: November 24, 2025
Abstract
We study the drivers of the Gilchrist and Zakrajšek (2012) excess bond premium (EBP) through the lens of the news. News attention to 178 topics (Bybee et al., 2024) explains up to 90% of monthly EBP variation, and this component of variation forecasts macroeconomic movements. Greater attention to bankruptcy, financial crises, and---novel to our analysis---U.S. presidents tends to drive up the EBP and portend macroeconomic downturns. Indeed, attention to presidents contributes more to EBP's predictive power for growth than any other topic. Attention-based estimates of EBP largely drive out the forecast power of direct sentiment measures for macroeconomic fluctuations and predict the business cycle going back to the early 1900's.
Keywords: Excess bond premium, textual analysis, credit spreads, macroeconomy, growth, LASSO, news, politics
Suggested Citation: Suggested Citation
Benson, Kevin and Cheng, Ing-Haw and Hull, John C. and Martineau, Charles and Nozawa, Yoshio and Strela, Vasily and Wu, Yuntao and yuan, Jun, The Attention-Based Excess Bond Premium (November 24, 2025). Available at SSRN: https://ssrn.com/abstract=5037810 or http://dx.doi.org/10.2139/ssrn.5037810
Ing-Haw Cheng
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
HOME PAGE: http://inghawcheng.github.io
John C. Hull
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
(416) 978-8615 (Phone)
416-971-3048 (Fax)
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