The Cross Section of International Government Bond Returns

Abstract

Volatility risk, credit risk, value effect, and momentum are major return drivers in the fixed-income universe. This study offers a four-factor pricing model for international government bonds. The model thoroughly explains the variation of government bond returns and covers a range of more than 60 cross-sectional return patterns in government bond markets, verifying its usefulness for asset pricing. The research was conducted within a sample of bonds from 25 developed and emerging markets for the years 1992 to 2016.

Keywords: asset pricing, government bonds, sovereign bonds, fixed-income securities, international markets, cross section of returns, value, momentum, credit risk, volatility

JEL Classification: G12, G14, G15