Out-of-Sample Predictions of Bond Excess Returns and Forward Rates: An Asset Allocation Perspective

Daniel L. Thornton; Giorgio Valente

doi:10.1093/rfs/hhs069

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Out-of-Sample Predictions of Bond Excess Returns and Forward Rates: An Asset Allocation Perspective

Daniel L. Thornton¹; Giorgio Valente²

¹ Federal Reserve Bank of St. Louis · ² University of Essex

Review of Financial Studies 2012

This article investigates the out-of-sample predictability of bond excess returns. We assess the economic value of the forecasting ability of empirical models based on long-term forward interest rates in a dynamic asset allocation strategy. The results show that the information content of forward rates does not generate systematic economic value to investors. Indeed, these models do not outperform the no-predictability benchmark. Furthermore, their relative performance deteriorates over time.

DOI: 10.1093/rfs/hhs069
Volume: 25 (10)
Pages: 3141-3168
Language: en
Export: BibTeX
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