Excess Returns and Risk at the Long End of the Treasury Market: An Egarch-M Approach
Abstract
This paper models weekly excess returns of 10-year Treasury notes and long-term Treasury bonds from 1968 through 1993 using an exponential generalized autoregressive conditional hetroskedasticity in mean (EGARCH-M) approach. The results indicate the presence of conditional hetroskedasticity and a strong tendency for the ex-ante volatility of excess returns to increase more following negative excess return innovations compared to positive innovations of equal magnitude. In addition, increases in ex-ante volatility are associated in some subperiods with rising excess returns on longer-term instruments, although the slope of the yield curve and lagged excess returns generally remain significant predictors of excess returns.
Abstract TItis paper models weekly excess returns of 10-year Treasury notes and long-tenn Treasury bonds flOm 1968 through 1993 using an exponential generalized autoregressive conditional heterosked asticity in mean (EGARCH-M) approach. The results indicate the presence ofconditional hetero skedasti-;;ity and a strong tendency for the ex-ante volatility ofexcess returns to increase more following negative excess return innovations compared to positive innovations ofequal magnitude. In addition, increases in ex-ante volatility are associated in some subperiods with rising excess returns on longer-tenn instruments, although the slope ofthe yield curve and lagged excess returns generally remain ~;ignificant predictors ofexcess returns.
Cite this document
Allan D. Brunner and David P. Simon (1995). Excess Returns and Risk at the Long End of the Treasury Market: An Egarch-M Approach (IFDP 1995-522). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-522
@techreport{wtfs_ifdp_1995_522,
author = {Allan D. Brunner and David P. Simon},
title = {Excess Returns and Risk at the Long End of the Treasury Market: An Egarch-M Approach},
type = {International Finance Discussion Papers},
number = {1995-522},
institution = {Board of Governors of the Federal Reserve System},
year = {1995},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-522},
abstract = {This paper models weekly excess returns of 10-year Treasury notes and long-term Treasury bonds from 1968 through 1993 using an exponential generalized autoregressive conditional hetroskedasticity in mean (EGARCH-M) approach. The results indicate the presence of conditional hetroskedasticity and a strong tendency for the ex-ante volatility of excess returns to increase more following negative excess return innovations compared to positive innovations of equal magnitude. In addition, increases in ex-ante volatility are associated in some subperiods with rising excess returns on longer-term instruments, although the slope of the yield curve and lagged excess returns generally remain significant predictors of excess returns.},
}