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International Bond Risk Premia

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  • Dahlquist, Magnus
  • Hasseltoft, Henrik
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    Abstract

    We find evidence for time-varying risk premia across international bond markets. Local and global factors jointly predict returns. The global factor is closely linked to US bond risk premia and international business cycles. Movements in the global factor seem to drive risk premia and expected short-term interest rates in opposite directions. We consider an affine term-structure model in which risk premia are driven by one local and one global factor. Shocks to these factors account for only a small fraction of yield variance and the cross-section of yields conveys little information about the factors. Finally, correlations between international bond risk premia have increased over time, suggesting an increase in integration between markets.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Economics.

    Volume (Year): 90 (2013)
    Issue (Month): 1 ()
    Pages: 17-32

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    Handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:17-32

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    Web page: http://www.elsevier.com/locate/inca/505552

    Related research

    Keywords: Affine model; Local and global factors; Time-varying risk premia;

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    Cited by:
    1. Hanno Lustig & Andreas Stathopoulos & Adrien Verdelhan, 2013. "The Term Structure of Currency Carry Trade Risk Premia," NBER Working Papers 19623, National Bureau of Economic Research, Inc.
    2. Laborda, Ricardo & Olmo, Jose, 2014. "Investor sentiment and bond risk premia," Journal of Financial Markets, Elsevier, vol. 18(C), pages 206-233.

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