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01656nam a2200217Ia 4500 |
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10.1142-S2010139219500113 |
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220511s2019 CNT 000 0 und d |
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|a 20101392 (ISSN)
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245 |
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|a Short-Run Bond Risk Premia
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260 |
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|b World Scientific Publishing Co. Pte Ltd
|c 2019
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|z View Fulltext in Publisher
|u https://doi.org/10.1142/S2010139219500113
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|a In the short-run, bond risk premia exhibit pronounced spikes around major economic and financial crises. In contrast, long-term bond risk premia feature cyclical swings. We empirically examine the predictability of the market variance risk premium - a proxy of economic uncertainty - for bond risk premia and we show the strong predictive power for the one-month horizon that quickly recedes for longer horizons. The variance risk premium is largely orthogonal to well-established bond return predictors - forward rates, jumps, and macro variables. We rationalize our empirical findings in an equilibrium model of uncertainty about consumption and inflation which is coupled with recursive preferences. We show that the model can quantitatively explain the levels of bond and variance risk premia as well as the predictive power of the variance risk premium, while jointly matching salient features of other asset prices. © 2019 World Scientific Publishing Company.
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|a bond risk premia
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|a economic uncertainty
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|a expectations hypothesis
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|a inflation dynamics
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|a Variance risk premium
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700 |
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|a Mueller, P.
|e author
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|a Vedolin, A.
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|a Zhou, H.
|e author
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|t Quarterly Journal of Finance
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