Text-Based Fear and Bond Risk Premia

41 Pages Posted: 20 Oct 2022

See all articles by Yuanzhi Wang

Yuanzhi Wang

Shandong University - School of Economics

Qunzi Zhang

Shandong University

Multiple version iconThere are 2 versions of this paper

Date Written: October 12, 2022


This paper aims to explore whether text-based sentiment can perform well at predicting bond returns. We propose a sentiment trend factor based on the bond fear index that is a powerful predictor for future bond risk premia in- and out-of-sample. Notably, the text-based fear trend factor outperforms the previous effective bond return predictors and remains significant in further robustness tests, including the parametric VAR bootstrap test of Bauer and Hamilton (2018). Moreover, we find that news media has a greater impact on bond returns. The potential economic explanation is also proposed for this bond risk premia prediction.

Keywords: Bond risk premium, Text-based sentiment, Return predictability

JEL Classification: C53, G11, G12, G17

Suggested Citation

Wang, Yuanzhi and Zhang, Qunzi, Text-Based Fear and Bond Risk Premia (October 12, 2022). Available at SSRN: https://ssrn.com/abstract=4248512 or http://dx.doi.org/10.2139/ssrn.4248512

Yuanzhi Wang (Contact Author)

Shandong University - School of Economics ( email )

School of Economics, Shandong University
No. 27 Shanda Nanlu
Jinan, Shandong 250100

Qunzi Zhang

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, SD Shandong 250100

HOME PAGE: http://www.econ.sdu.edu.cn/info/1257/42629.htm

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