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The predictability of excess returns in the emerging bond markets

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  • Yin-Feng Gau
  • Wen-Ju Liao

Abstract

This study examines the relationships that exist between excess bond returns and global and country-specific factors, focusing on a sample of 12 developing countries. Our results show a significantly negative autocorrelation with regard to the excess returns of bonds in the emerging markets; with growth in the size of the local bond market, there is a corresponding increase in the excess bond returns. For most of the developing economies, with an increase in emerging market bond returns, there are discernible reductions in the level of domestic interest rate and increases in the volatility of bond returns. A higher sovereign bond spread predicts higher excess returns for emerging market bonds. Overall, we find that world factors have relatively less predictive power in the emerging market bonds.

Suggested Citation

  • Yin-Feng Gau & Wen-Ju Liao, 2012. "The predictability of excess returns in the emerging bond markets," Applied Financial Economics, Taylor & Francis Journals, vol. 22(17), pages 1429-1451, September.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:17:p:1429-1451
    DOI: 10.1080/09603107.2012.659340
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    File URL: http://hdl.handle.net/10.1080/09603107.2012.659340
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    References listed on IDEAS

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    1. Barry Eichengreen & Pipat Luengnaruemitchai, 2006. "Why doesn’t Asia have bigger bond markets?," BIS Papers chapters,in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 40-77 Bank for International Settlements.
    2. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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