Unspanned Global Macro Risks in Bond Returns

forthcoming in Management Science

51 Pages Posted: 30 Jan 2014 Last revised: 31 Aug 2020

See all articles by Feng Zhao

Feng Zhao

University of Texas at Dallas - Jindal School of Management

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Xiaoneng Zhu

Shanghai University of Finance and Economics

Date Written: August 1, 2016

Abstract

This paper examines the macro-spanning hypothesis for bond returns in international markets. Based on a large panel of real-time macro variables that are not subject to revisions, we
find that global macro factors have predictive power for bond returns unspanned by yield factors.
Furthermore, we estimate macro-finance term structure models (MTSMs) with the unspanned
global macro factors and find that the global macro factors influence the market prices of level
and slope risks and induce co-movements in forward term premia in global bond markets.

Keywords: Bond risk premia, global economic factor, real-time macroeconomic factors, return predictability, unspanning puzzle.

JEL Classification: G1, E4, F3

Suggested Citation

Zhao, Feng and Zhou, Guofu and Zhu, Xiaoneng, Unspanned Global Macro Risks in Bond Returns (August 1, 2016). forthcoming in Management Science, Available at SSRN: https://ssrn.com/abstract=2388026 or http://dx.doi.org/10.2139/ssrn.2388026

Feng Zhao

University of Texas at Dallas - Jindal School of Management ( email )

800 W. Campbell Rd. SM 31
Richardson, TX 75080
United States
972-883-5815 (Phone)

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

Xiaoneng Zhu (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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