Predicting Bond Betas Using Macro-Finance Variables
13 Pages Posted: 11 Jan 2017 Last revised: 21 Jul 2018
Date Written: December 7, 2017
We predict bond betas conditioning on a number of macro-finance variables. We explore differences across long-term government bonds, investment grade corporate bonds, and high yield corporate bonds. We conduct out-of-sample forecasting using the new approach of combining predictor variables through Complete Subset Regressions (CSR). We consider the robustness of CSR forecasts across the 1-month, 3-month, and 12-month forecasting horizons. The CSR method performs well in predicting bond betas.
Keywords: bond betas; Complete Subset Regressions; corporate bonds; government bonds; macro-finance variables; Model Confidence Set
JEL Classification: C22; C53; C55; G12
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