Predicting Bond Return Predictability

• 成果类型: Article
• 署名作者: Borup, Daniel; Eriksen, Jonas N.; Kjaer, Mads M.; Thyrsgaard, Martin
• 署名单位: Aarhus University; Danish Finance Institute
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4713
• 发表日期: 2024
• 关键词: bond excess returns; forecast combination; state dependencies; multivariate test; equal conditional predictive ability

摘要

This paper provides empirical evidence on predictable time variations in out-of sample bond return predictability. Bond return predictability is associated with periods of high (low) economic activity (uncertainty), which implies that violations of the expectations hypothesis are state dependent and linked to features of the business cycle. These state dependencies in predictability, established by introducing a new multivariate test for equal conditional predictive ability, can be used in real time to improve out-of-sample bond risk premia estimates and investors' economic utility through a novel dynamic forecast combination scheme that uses predicted forecasting performance to identify the best set of methods to include in the combined forecast. Dynamically combined forecasts exhibit strong countercyclical behavior and peak during recessions.