Unspanned Global Macro Risks in Bond Returns
38 Pages Posted: 30 Jan 2014 Last revised: 3 Aug 2017
Date Written: August 1, 2016
This paper examines the global economic driving force of bond returns in international markets. Relying on a large panel of real-time macro variables that are not subject to revisions, we find no predictability of local macro factors for bond risk premia. However, global macro factors can strongly predict international bond returns. Consistent with economic theories, global macro factors imply countercyclical risk premia. We then conduct various macro-unspanning tests and find that global macro risks are unspanned by the local and global yield curves. Our findings suggest that global macro factors represent a different source of bond market risks other than global and local interest rate risks.
Keywords: Bond risk premia, global economic factor, real-time macroeconomic factors, return predictability, unspanning puzzle.
JEL Classification: G1, E4, F3
Suggested Citation: Suggested Citation