Unspanned Global Macro Risks in Bond Returns

38 Pages Posted: 30 Jan 2014 Last revised: 3 Aug 2017

See all articles by Guofu Zhou

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Xiaoneng Zhu

Shanghai University of Finance and Economics

Date Written: August 1, 2016

Abstract

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

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

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/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

Xiaoneng Zhu (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Register to save articles to
your library

Register

Paper statistics

Downloads
879
rank
25,437
Abstract Views
3,244
PlumX Metrics