Greenwood, Robin and Vayanos, Dimitri 
ORCID: 0000-0002-0944-4914
(2008)
Bond supply and excess bond returns.
Financial Markets Group Discussion Papers (607).
Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
We examine empirically how the maturity structure of government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model, we find that (i) the supply of long- relative to short-term bonds is positively related to the term spread, (ii) supply predicts positively long-term bonds’ excess returns even after controlling for the term spread and the Cochrane-Piazzesi factor, (iii) the effects of supply are stronger for longer maturities, and (iv) following periods when arbitrageurs have lost money, both supply and the term spread are stronger predictors of excess returns.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | https://www.fmg.ac.uk/ |
| Additional Information: | © 2008 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects) G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management |
| Date Deposited: | 09 Jul 2009 14:10 |
| Last Modified: | 11 Dec 2024 18:53 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24425 |
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