Are Bond Returns Predictable with Real-Time Macro Data?

76 Pages Posted: 23 Jan 2018 Last revised: 22 Oct 2021

See all articles by Dashan Huang

Dashan Huang

Singapore Management University - Lee Kong Chian School of Business

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Kunpeng Li

Capital University of Economics and Business

Guoshi Tong

Renmin University

Guofu Zhou

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

Date Written: April 30, 2020

Abstract

We examine whether bond returns are predicted by real-time macro variables with possible nonlinear predictive relationship and possible presence of weak factors. We propose a scaled sufficient forecasting method to deal with the issues arising from these two features, and study its asymptotic properties. Applying both existing and our new methods, we find that real-time macro variables have significant in- and out-of-sample forecasting power, generate sizeable economic values, and their predictability is not spanned by the yield curve.
We also find that the forecasted bond returns are countercycilcal and the magnitude of predictability is stronger in economic recessions, thereby lending empirical support to well-known macro finance theories.

Keywords: Bond Return Predictability, Real Time Macro Data, Vintage, PCA, Big Data, Machine Learning

JEL Classification: C22, C53, G11, G12, G17

Suggested Citation

Huang, Dashan and Jiang, Fuwei and Li, Kunpeng and Tong, Guoshi and Zhou, Guofu, Are Bond Returns Predictable with Real-Time Macro Data? (April 30, 2020). Asian Finance Association (AsianFA) 2018 Conference, Available at SSRN: https://ssrn.com/abstract=3107612 or http://dx.doi.org/10.2139/ssrn.3107612

Dashan Huang

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore

HOME PAGE: http://dashanhuang.weebly.com/

Fuwei Jiang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Kunpeng Li

Capital University of Economics and Business ( email )

Zhangjialukou 121, Huaxiang
Fengtai district
Beijing, 100070
China

Guoshi Tong

Renmin University ( email )

59 Zhongguancun Street
Beijing, 100872
China

Guofu Zhou (Contact Author)

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/

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