Mind the (Convergence) Gap: Bond Predictability Strikes Back!

• 成果类型: Article
• 署名作者: Berardi, Andrea; Markovich, Michael; Plazzi, Alberto; Tamoni, Andrea
• 署名单位: Universita Ca Foscari Venezia; Universita della Svizzera Italiana; Swiss Finance Institute (SFI); Rutgers University System; Rutgers University New Brunswick; Rutgers University Newark
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3847
• 发表日期: 2021
• 页码: 7888-7911
• 关键词: Bond risk premia; forward rates; monetary policy; Natural rate of interest; bond predictability

摘要

We show that the difference between the natural rate of interest and the current level of monetary policy stance, which we label Convergence Gap (CG), contains information that is valuable for bond predictability. Adding CG in forecasting regressions of bond excess returns significantly raises the R-2, and restores countercyclical variation in bond risk premia that is otherwise missed by forward rates. Consistent with the argument that CG captures the effect of real imbalances on the path of rates, our factor has predictive ability for real bond excess returns. The importance of the gap remains robust out-of-sample and in countries other than the United States. Furthermore, its inclusion brings significant economic gains in the context of dynamic conditional asset allocation.