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Asymmetry in Government Bond Returns

  • Ippei Fujiwara
  • 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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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-12.

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Length: 29 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-12
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