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Australian Bond Excess Returns: An Asset Allocation Perspective
Author(s) -
Chen Rui,
Wang Meng,
Svec Jiri
Publication year - 2017
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12087
Subject(s) - predictability , bond , government bond , economics , asset allocation , econometrics , perspective (graphical) , forward rate , sample (material) , excess return , asset (computer security) , bond market , financial economics , maturity (psychological) , monetary economics , interest rate , finance , statistics , mathematics , context (archaeology) , computer science , portfolio , geography , computer security , chemistry , archaeology , geometry , chromatography , psychology , developmental psychology
We examine the out‐of‐sample predictability of excess returns in the Australian government bond market. Our results confirm previous findings that a linear combination of forward rates provides a statistically significant prediction of bond excess returns on 1‐ to 5‐year maturity bonds. However, from an asset allocation perspective, our predictive model fails to obtain positive economic utility against the no‐predictability benchmark. Our results are robust to the sample period and different parameter assumptions.