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Government bond risk and return in the US and China

Author

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  • Carpenter, Jennifer N.
  • Lu, Fangzhou
  • Whitelaw, Robert F.

Abstract

We propose a new approach to modeling bond risk and risk premia, inspired by the equity risk-return literature, which does not impose the tight restrictions found in models that generate closed-form bond prices. We estimate the joint dynamics of the volatility and Sharpe ratio of principal-component bond-factor portfolios for the US and China. Predictors include yield curve variables and, for the US, VIX. We document complex time-varying relations between the price and quantity of interest rate risk inconsistent with the frameworks in existing studies. Interesting differences between the US and China further highlight the need for our more flexible approach.

Suggested Citation

  • Carpenter, Jennifer N. & Lu, Fangzhou & Whitelaw, Robert F., 2026. "Government bond risk and return in the US and China," Journal of Financial Economics, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jfinec:v:176:y:2026:i:c:s0304405x25002326
    DOI: 10.1016/j.jfineco.2025.104224
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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