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Asymmetry in Government Bond Returns

  • Ippei Fuijwara

    (Australia-Japan Research Centre (AJRC))

  • Lena Mareen Korber
  • Daisuke Nagakura

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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File URL: http://www.eaber.org/node/23399
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Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 23399.

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Date of creation: Mar 2013
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Handle: RePEc:eab:financ:23399
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  4. Lena Mareen Koerber & Daisuke Nagakura & Ippei Fujiwara, 2011. "How much Asymmetry is there in Bond Returns and Exchange Rates?," Bank of Japan Working Paper Series 11-E-10, Bank of Japan.
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  11. Vahamaa, Sami, 2005. "Option-implied asymmetries in bond market expectations around monetary policy actions of the ECB," Journal of Economics and Business, Elsevier, vol. 57(1), pages 23-38.
  12. Chunhachinda, Pornchai & Dandapani, Krishnan & Hamid, Shahid & Prakash, Arun J., 1997. "Portfolio selection and skewness: Evidence from international stock markets," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 143-167, February.
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  17. Amar Gande & David Parsley, 2003. "News Spillovers in the Sovereign Debt Market," Working Papers 062003, Hong Kong Institute for Monetary Research.
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