Fear in the "Fearless" Treasury Market

81 Pages Posted: 14 Oct 2024

See all articles by Tianyang Wang

Tianyang Wang

Colorado State University, Fort Collins - Department of Finance & Real Estate

Yuanzhi Wang

Shandong University - School of Economics

Qunzi Zhang

Shandong University

Guofu Zhou

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

Date Written: September 08, 2024

Abstract

This paper examines how fear affects the Treasury market and predicts Treasury bond returns. Using a text-based fear index from social and news media, we find that fear significantly predicts future Treasury returns, both in-sample and out-of-sample, and suggests the global transmission of fear. We also propose a model explaining that risk aversion shocks drive bond risk premia. Our paper further explores various dimensions of fear effects, such as term, magnitude, dynamics, and sources, and compares them with other sentiments. The results highlight the critical role of fear in Treasury market dynamics.

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

JEL Classification: C53, G11, G12, G17

Suggested Citation

Wang, Tianyang and Wang, Yuanzhi and Zhang, Qunzi and Zhou, Guofu, Fear in the "Fearless" Treasury Market (September 08, 2024). Available at SSRN: https://ssrn.com/abstract=4950235 or http://dx.doi.org/10.2139/ssrn.4950235

Tianyang Wang

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Finance and Real Estate Department
1272 Campus Delivery
Fort Collins, CO 80523
United States

Yuanzhi Wang

Shandong University - School of Economics ( email )

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

Qunzi Zhang

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

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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