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Financial Conditions, Macroeconomic Factors and Disaggregated Bond Excess Returns

Aufsätze referiert extern - Web of Science

Christoph Fricke, Lukas Menkhoff

In: Journal of Banking & Finance 58 (2015), S. 80-94

Abstract

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 innovation 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.

Lukas Menkhoff

Head of Department in the International Economics Department

Topics: Monetary policy



JEL-Classification: E43;G12
Keywords: Financial conditions, Bond excess returns, Term premia
DOI:
http://dx.doi.org/10.1016/j.jbankfin.2015.03.015

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