Forecasting Government Bond Risk Premia Using Technical Indicators
50 Pages Posted: 22 Aug 2011 Last revised: 13 Nov 2013
Date Written: July 28, 2013
While economic variables have been used extensively to forecast bond risk premia, little attention has been paid to technical indicators which are widely used by practitioners. In this paper, we study the predictive ability of a variety of technical indicators vis-a-vis the economic variables. We ﬁnd that technical indicators have signiﬁcant in both in- and out-of-sample forecasting power. Moreover, we ﬁnd that using information from both technical indicators and economic variables increases the forecasting performance substantially. We also ﬁnd that the economic value of bond risk premia forecasts from our methodology is comparable to that of equity risk premium forecasts.
Keywords: Bond risk premium predictability, Economic variables, Technical analysis, Moving average rules, Volume, Out-of-sample forecasts, Principal components
JEL Classification: C53, C58, G11, G12, G17
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