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Asymmetry in Government Bond Returns

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  • Ippei Fuijwara

    (Australia-Japan Research Centre (AJRC))

  • Lena Mareen Korber
  • Daisuke Nagakura

Abstract

Is there asymmetry in the distribution of government bond returns in developed countries? Can asymmetries be predicted using financial and macroeconomic variables? To answer the first question, we provide evidence for asymmetry in government bond returns in particular for short maturities. This finding has important implications for modelling and forecasting government bond returns. For example, widely used models for yield curve analysis such as the affine term structure model assume symmetrically distributed innovations. To answer the second question, we find that liquidity in government bond markets predicts the coefficient of skewness with a positive sign, meaning that the probability of a large and negative excess return is more likely in a less liquid market. In addition, a positive realized return is associated with a negative coefficient of skewness, or a small probability of a large and negative return in the future.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 23399.

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Date of creation: Mar 2013
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Handle: RePEc:eab:macroe:23399

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Keywords: Government bond returns; skewness; conditional symmetry test;

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References

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  18. Bai, Jushan & Ng, Serena, 2001. "A consistent test for conditional symmetry in time series models," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 225-258, July.
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  23. Ippei Fujiwara & Lena Mareen Körber & Daisuke Nagakura, 2011. "How much asymmetry is there in bond returns and exchange rates?," Globalization and Monetary Policy Institute Working Paper 93, Federal Reserve Bank of Dallas.
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