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Asymmetry in government bond returns

  • Daisuke Nagakura
  • Lena Mareen Korber
  • Ippei Fujiwara
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    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 andnegative return in the future.

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    File URL: https://crawford.anu.edu.au/pdf/ajrc/wpapers/2013/201301.pdf
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    Paper provided by Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University in its series AJRC Working Papers with number 1301.

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    Length: 27 pages
    Date of creation: 2013
    Date of revision:
    Handle: RePEc:csg:ajrcwp:1301
    Contact details of provider: Postal: Canberra ACT 2601
    Phone: (61-2) 6249 3780
    Fax: (61-2) 6249 3941
    Web page: https://crawford.anu.edu.au/research_units/ajrc/
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    1. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
    2. Vähämaa, Sami, 2004. "Option-implied asymmetries in bond market expectations around monetary policy actions of the ECB," Working Paper Series 0315, European Central Bank.
    3. Afonso, António & Furceri, Davide & Gomes, Pedro, 2012. "Sovereign credit ratings and financial markets linkages: Application to European data," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 606-638.
    4. Jochen R. Andritzky, 2012. "Government Bonds and their Investors; What Are the Facts and Do they Matter?," IMF Working Papers 12/158, International Monetary Fund.
    5. D'Agostino, Antonello & Ehrmann, Michael, 2013. "The pricing of G7 sovereign bond spreads: the times, they are a-changin," Working Paper Series 1520, European Central Bank.
    6. 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.
    7. Gamini Premaratne, 2005. "A Test for Symmetry with Leptokurtic Financial Data," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(2), pages 169-187.
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