We document that the Spanning Hypothesis, which is implied by most macro-finance term structure models, is violated asymmetrically along the U.S. yield curve. After controlling for information in bond prices, we find that macroeconomic variables help predict short-maturity bond returns with statistical and economic significance, while the evidence for long-maturity bonds is much weaker.
Gustavo Freire, Raul Riva
What is the pattern
To understand this pattern, we provide a new decomposition of bond excess returns in terms of innovations of short-, medium- and long-run factors of the yield curve. We show that, in fact, macro data only contains unspanned predictive information about the short-run factor. This extra predictability varies over time and is stronger when inflation is high.
FinEML seminar series
The FinEML seminar series is designed to create a collaborative platform for the exchange of insights and findings within the field. We aim to foster a friendly atmosphere that encourages constructive feedback, providing an opportunity for both junior and senior researchers to share their work.
Submit research paper
Submit original research papers in the following topics, but not limited to:
- Asset Pricing
- Big Data
- Forecasting with Machine Learning
- Macro Finance
- Option Pricing
