We document that the Spanning Hypothesis, which is implied by most macro-finance term structure models, is violated asymmetrically along the U.S. yield curve. After controlling for information in bond prices, we find that macroeconomic variables help predict short-maturity bond returns with statistical and economic significance, while the evidence for long-maturity bonds is much weaker.
Gustavo Freire, Raul Riva
What is the pattern
To understand this pattern, we provide a new decomposition of bond excess returns in terms of innovations of short-, medium- and long-run factors of the yield curve. We show that, in fact, macro data only contains unspanned predictive information about the short-run factor. This extra predictability varies over time and is stronger when inflation is high.
FinEML seminar series
The FinEML seminar series is designed to create a collaborative platform for the exchange of insights and findings within the field. We aim to foster a friendly atmosphere that encourages constructive feedback, providing an opportunity for both junior and senior researchers to share their work.
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Submit original research papers in the following topics, but not limited to:
- Asset Pricing
- Big Data
- Forecasting with Machine Learning
- Macro Finance
- Option Pricing
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