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Global trends in real risk free rates

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  • He, Hui
  • Locke, Peter
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    Abstract

    We examine real returns to government debt of the G7 countries, for both short and long maturities. Our focus is on returns to fixed income investing rather than contemporaneous yields. We find evidence that investments in the same maturity across countries may be modeled as a cointegrated process, in a vector error correction framework, with common trends separated into their permanent and transitory components for the system. Our findings are based on analysis of both short-term maturities and long-term maturities. However, the structure varies excessively across maturities and time frames, with recent data showing less integration.

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    Bibliographic Info

    Article provided by Elsevier in its journal Research in International Business and Finance.

    Volume (Year): 25 (2011)
    Issue (Month): 1 (January)
    Pages: 53-63

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    Handle: RePEc:eee:riibaf:v:25:y:2011:i:1:p:53-63

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    Web page: http://www.elsevier.com/locate/ribaf

    Related research

    Keywords: Real interest rates Common trends Cointegration Global finance;

    References

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    1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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    3. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
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    8. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(2), pages 147-59, April.
    9. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-26, February.
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    12. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
    13. Bradley, Michael G. & Lumpkin, Stephen A., 1992. "The Treasury Yield Curve as a Cointegrated System," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 449-463, September.
    14. Hardouvelis, Gikas A., 1994. "The term structure spread and future changes in long and short rates in the G7 countries: Is there a puzzle?," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 255-283, April.
    15. Driessen, J.J.A.G. & Melenberg, B. & Nijman, T.E., 2000. "Common Factors in International Bond Returns," Discussion Paper 2000-91, Tilburg University, Center for Economic Research.
    16. Perignon, Christophe & Smith, Daniel R. & Villa, Christophe, 2007. "Why common factors in international bond returns are not so common," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 284-304, March.
    17. Richards, Anthony J., 1995. "Comovements in national stock market returns: Evidence of predictability, but not cointegration," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 631-654, December.
    18. Jian Yang, 2005. "Government bond market linkages: evidence from Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 15(9), pages 599-610.
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