Fundamental Economic Variables, Expected Returns, and Bond Fund Performance
JOURNAL OF FINANCE, Vol. 50 No. 4, September 1995
Posted: 23 Aug 1998
In this paper, we develop relative-pricing (APT) models that are successful in explaining expected returns in the bond market. We utilize indexes as well as unanticipated changes in economic variables as factors driving security returns. An innovation in this paper is the measurement of the economic factors as changes in forecasts. The return indexes are the most important variables in explaining the time series of returns. However, the addition of the economic variables leads to a large improvement in explaining the cross-section of expected returns. Weutilize our relative-pricing models to examine the performance of bond funds.
JEL Classification: G13
Suggested Citation: Suggested Citation