Financial conditions, macroeconomic factors and (un)expected bond excess returns

Arbeitspapier

Bond excess returns can be predicted by macro factors, however, large parts remain still unexplained. We apply a novel term structure model to decompose bond excess returns into expected excess returns (risk premia) and the unexpected part. In order to explore these risk premia and innovations, we complement macro variables by financial condition variables as possible determinants of bond excess returns. We find that the expected part of bond excess returns is driven by macro factors, whereas innovations seem to be mainly influenced by financial conditions, before and after the financial crisis. Thus financial conditions, such as financial stress, deserve attention when analyzing bond excess returns.

Object Details

• ISBN: 978-3-95729-089-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 35/2014

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: financial conditions ; bond excess returns ; term premia

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fricke, Christoph ; Menkhoff, Lukas
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/104621
• Last update: 10.03.2025, 11:44 AM CET