International Bond Return Predictability

Abstract

We study time-varying risk premia across international bond- and equity markets by running predictive regressions of excess returns. We nd that the single factor of Cochrane and Piazzesi (2005) and global factor of Dahlquist and Hasseltoft (2013) have lost some of their predictive power in later years, but they both individually and jointly predict excess bond returns across countries. The deterioration of yield-based predictors suggests that there are other important factors that drive risk premia. Finally, our results indicate that investors' required risk compensation is related to international business cycles. This