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International Bond Risk Premia

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  • Dahlquist, Magnus
  • Hasseltoft, Henrik

Abstract

We find evidence for time-varying risk premia across international bond markets. Local and global factors jointly predict returns. The global factor is closely linked to US bond risk premia and international business cycles. Movements in the global factor seem to drive risk premia and expected short-term interest rates in opposite directions. We consider an affine term-structure model in which risk premia are driven by one local and one global factor. Shocks to these factors account for only a small fraction of yield variance and the cross-section of yields conveys little information about the factors. Finally, correlations between international bond risk premia have increased over time, suggesting an increase in integration between markets.

Suggested Citation

  • Dahlquist, Magnus & Hasseltoft, Henrik, 2013. "International Bond Risk Premia," Journal of International Economics, Elsevier, vol. 90(1), pages 17-32.
    • Handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:17-32
    DOI: 10.1016/j.jinteco.2012.11.008
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    More about this item

    Keywords

    Affine model; Local and global factors; Time-varying risk premia;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • 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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