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American Economic Review: Vol. 95 No. 1 (March 2005)
AER Volume. 95, Issue 1 | 
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Bond Risk Premia
Article Citation
Cochrane, John H., and
Monika Piazzesi. 2005. "Bond Risk Premia."
The American Economic Review,
95(1): 138-160.
DOI: 10.1257/0002828053828581
DOI: 10.1257/0002828053828581
Abstract
We study time variation in expected excess bond returns. We run regressions of one-year excess returns on initial forward rates. We find that a single factor, a single tent-shaped linear combination of forward rates, predicts excess returns on one- to five-year maturity bonds with R2 up to 0.44. The return-forecasting factor is countercyclical and forecasts stock returns. An important component of the return-forecasting factor is unrelated to the level, slope, and curvature movements described by most term structure models. We document that measurement errors do not affect our central results.
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Full-text Article
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Download Data Set (130.21 KB) | Link to Appendix (290.32 KB)
Authors
Cochrane, John H.
Piazzesi, Monika
Piazzesi, Monika
