The Influence of Political, Economic and Financial Risk on Expected Fixed Income Returns

30 Pages Posted: 25 Oct 2005

See all articles by Claude B. Erb

Claude B. Erb

TR

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Tadas E. Viskanta

First Chicago Investment Management Co.

Date Written: May 1996

Abstract

Is there information in the commonly used indicators of country risk for expected global fixed income returns and volatility? We examine the information content in publicly available measures of political, financial and economic risk. We find that these ex-ante measures contain important information about the cross-section of expected fixed income and currency returns. Trading strategies based on the change in, and level of, these risk measures produce positive risk-adjusted returns. We find that the country risk measures are significantly correlated with international bond metrics, such as real yields. This is the final working paper version of our 1996 Journal of Fixed Income publication.

Keywords: global bond strategies, predicting bond returns, trading strategies, interest rates, political risk, economic risk, financial risk, country risk, trading strategies, active management

JEL Classification: G15, G11, G12, F30

Suggested Citation

Erb, Claude B. and Harvey, Campbell R. and Viskanta, Tadas E., The Influence of Political, Economic and Financial Risk on Expected Fixed Income Returns (May 1996). Available at SSRN: https://ssrn.com/abstract=825926 or http://dx.doi.org/10.2139/ssrn.825926

Claude B. Erb

TR ( email )

CA 90272
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Tadas E. Viskanta

First Chicago Investment Management Co. ( email )

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