Text-Based Fear and Bond Risk Premia

42 Pages Posted: 9 Nov 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

Abstract

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 premiumText-based sentimentReturn predictability

Suggested Citation

Wang, Yuanzhi and Zhang, Qunzi, Text-Based Fear and Bond Risk Premia. Available at SSRN: https://ssrn.com/abstract=4272152 or http://dx.doi.org/10.2139/ssrn.4272152

Yuanzhi Wang

Shandong University - School of Economics ( email )

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

Qunzi Zhang (Contact Author)

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, SD Shandong 250100
China

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

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