Abstract

https://ssrn.com/abstract=1687953
 
 

References (55)



 
 

Citations (9)



 


 



Out-of-sample Predictions of Bond Excess Returns and Forward Rates: An Asset-Allocation Perspective


Daniel L. Thornton


Federal Reserve Bank of St. Louis - Research Division

Giorgio Valente


Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

October 5, 2010


Abstract:     
This paper revisits the predictability of bond excess returns by means of long-term forward interest rates. We assess the economic value of out-of-sample forecasting ability of empirical models based on forward rates in a dynamic asset allocation strategy. Our results show that the information content of forward rates does not generate any systematic economic value to investors. The performance of the predictive models against the no-predictability benchmark worsens over time and the few positive performance fees recorded from dynamic portfolio strategies based on forward rates are generally small in size and do not offset realistic transaction costs.

Number of Pages in PDF File: 38

Keywords: bond yields, bond excess returns, predictability

JEL Classification: G0, G1, E0, E4


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Date posted: October 7, 2010 ; Last revised: April 12, 2011

Suggested Citation

Thornton, Daniel L. and Valente, Giorgio, Out-of-sample Predictions of Bond Excess Returns and Forward Rates: An Asset-Allocation Perspective (October 5, 2010). Available at SSRN: https://ssrn.com/abstract=1687953 or http://dx.doi.org/10.2139/ssrn.1687953

Contact Information

Daniel L. Thornton (Contact Author)
Federal Reserve Bank of St. Louis - Research Division ( email )
411 Locust St
Saint Louis, MO 63011
United States
314-444-8582 (Phone)
314-444-8731 (Fax)
HOME PAGE: http://research.stlouisfed.org/econ/thornton/
Giorgio Valente
Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )
3 Garden Road, 8th Floor
Hong Kong
China
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