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Mueller, Philippe, Vedolin, Andrea and Zhou, Hao (2019) Short-run bond risk premia. Quarterly Journal of Finance, 9 (3). 1950011. doi:10.1142/S2010139219500113
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Official URL: http://dx.doi.org/10.1142/S2010139219500113
Abstract
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 ̄ndings in an equilibrium model of uncertainty about consumption and inforation 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.
| Item Type: | Journal Article | |||||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Risk, Financial risk, Financial crises, Bonds | |||||||||
| Journal or Publication Title: | Quarterly Journal of Finance | |||||||||
| Publisher: | World Scientific | |||||||||
| ISSN: | 2010-1392 | |||||||||
| Official Date: | 12 June 2019 | |||||||||
| Dates: |
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| Volume: | 9 | |||||||||
| Number: | 3 | |||||||||
| Article Number: | 1950011 | |||||||||
| DOI: | 10.1142/S2010139219500113 | |||||||||
| Status: | Peer Reviewed | |||||||||
| Publication Status: | Published | |||||||||
| Publisher Statement: | Electronic version of an article published as Quarterly Journal of Finance, 9 (3). 1950011. doi:10.1142/S2010139219500113 © 2019 World Scientific Publishing Company https://www.worldscientific.com/doi/abs/10.1142/S2010139219500113 | |||||||||
| Access rights to Published version: | Restricted or Subscription Access | |||||||||
| RIOXX Funder/Project Grant: |
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