Investor sentiment and bond risk premia
Investor sentiment and bond risk premia
This article studies the statistical significance of the set of market sentiment variables proposed by Baker and Wurgler (2006) to predict the risk premium on U.S. sovereign bonds. We show that these variables can be summarized in one single market sentiment factor similar in spirit to the single-return forecasting factor proposed by Cochrane and Piazzesi (2005). Our findings reveal that this factor has predictive power beyond that contained in the yield curve and benchmark macroeconomic factors. The predictive power of this variable is time-varying, exhibiting more relevance during recession periods.
bond risk premia, forward prices, investor sentiment, bootstrap standard errors, wald tests
206-233
Laborda, R.
2bdeacea-069f-48ee-a898-a3a9ca486142
Olmo, J.
706f68c8-f991-4959-8245-6657a591056e
March 2014
Laborda, R.
2bdeacea-069f-48ee-a898-a3a9ca486142
Olmo, J.
706f68c8-f991-4959-8245-6657a591056e
Abstract
This article studies the statistical significance of the set of market sentiment variables proposed by Baker and Wurgler (2006) to predict the risk premium on U.S. sovereign bonds. We show that these variables can be summarized in one single market sentiment factor similar in spirit to the single-return forecasting factor proposed by Cochrane and Piazzesi (2005). Our findings reveal that this factor has predictive power beyond that contained in the yield curve and benchmark macroeconomic factors. The predictive power of this variable is time-varying, exhibiting more relevance during recession periods.
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LabordaOlmoJFMfinalversion.pdf
- Accepted Manuscript
More information
Accepted/In Press date: 1 May 2013
e-pub ahead of print date: 7 June 2013
Published date: March 2014
Keywords:
bond risk premia, forward prices, investor sentiment, bootstrap standard errors, wald tests
Organisations:
Economics
Identifiers
Local EPrints ID: 357416
URI: http://eprints.soton.ac.uk/id/eprint/357416
ISSN: 1386-4181
PURE UUID: 623be17d-7d5f-49d1-82cb-9dcf2df78985
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Date deposited: 07 Oct 2013 13:45
Last modified: 15 Mar 2024 03:46
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Author:
R. Laborda
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