Time-Varying Expected Returns in International Bond Markets
Posted: 3 May 2000
This paper examines the predictable variation in long- maturity government bond returns in six countries. A small set of global instruments can forecast 4-12% of monthly variation in excess bond returns. The predictable variation is statistically and economically significant. Moreover, expected excess returns are highly correlated across countries. A model with one global risk factor and constant conditional betas can explain international bond return predictability if the risk factor is proxied by the world excess bond return, but not if it is proxied by the world excess stock return.
JEL Classification: F3
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