Expected Returns in the International Bond Market
Date Issued
2004
Date
2004
Author(s)
Wu, Chiou-Lian
DOI
en-US
Abstract
Abstract：
In this article, I want to address two questions: (a) Can I predict bond returns by using some instruments? (b) Are expected bond returns in these twelve countries consistent with some asset pricing models? I study twelve countries’ long-term government bonds: United States, Canada, Japan, Australia, Germany, France, United Kingdom, Belgium, Italy, Spain, Denmark and Netherlands from January 1991 to February 2003.
I use five factors to explain expected returns on government bonds. These five factors are: inverse relative wealth (the ratio of exponentially weighted past wealth to current wealth), the bond beta (a bond market’s exposure to a stock market index), the term spread, the real bond yield, and the change of exchange rate. I find the term spread and the real bond yield has consistent effect on bond returns positively. And the returns on currency have negatively impact on the returns on government bond returns.
I use two pricing model to test whether government bond market is consistent with asset pricing model. The first model is latent variables model. In this model, I can’t reject asset pricing model by using two latent variables model. The second model is bivariate GARCH-in-mean model. In this model, I find the conditional covariance between country government bond returns and world portfolio returns have significant effect on government bond returns.
The reminder of the paper is divided into four sections. Section II introduces asset pricing models used. In this section, there are two parts. The first part presents the latent variables model, and the second part discusses a bivariate GARCH-in-mean model. Section III defines five instruments and explains the possible ways these instruments will affect bond returns. Section IV shows the results of empirical test. There are two parts in this section. The first part takes every country’s Treasury bill rate or short-term deposit rate to be the short-term rate and risk-free rate. The second part uses U.S. three-month Treasury bill rate to be every country’s short-term rate and risk-free rate. Section V is conclusion.
Subjects
資產訂價理論
預期報酬
政府公債
Latent Variables Model
Expected Gove
GARCH Model
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-93-R91723020-1.pdf
Size
23.31 KB
Format
Adobe PDF
Checksum
(MD5):1cbb0cd637eb1d13f58d3ec3970847ca