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Economic Risk Premia in the Fixed-Income Markets: The Intraday Evidence

Published online by Cambridge University Press:  31 October 2017

Pierluigi Balduzzi  and
Fabio Moneta
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Abstract

We use high-frequency data to precisely estimate bond price reactions to macroeconomic announcements and the associated compensation for macro risks. We find evidence of a single factor summarizing the reaction of bond prices to different announcements. Before the financial crisis, the factor risk premium is substantial, significant, and mainly earned before announcement releases. After the crisis, the stock–bond covariance becomes negative and the preannouncement factor risk premium becomes insignificant. Our empirical results are consistent with information leakages that take place ahead of announcement releases and with the implications of a long-run risks model of bond risk premia.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 5 , October 2017 , pp. 1927 - 1950
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

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Footnotes

1

We thank Yakov Amihud, Stephen Brown (the editor), David Chapman, Walter Distaso (discussant), Peter Feldhütter (discussant), Wayne Ferson, Brian Kelly, Anh Le (discussant), Alan Marcus, Fabricio Perez (discussant), Marcel Priebsch (discussant), Ryan Riordan, Cesare Robotti, Tavy Ronen (the referee), Dongho Song, and seminar participants at the 2011 Northern Finance Association meetings, University of North Carolina at Charlotte, the 2011 Annual Conference on Advances in the Analysis of Hedge Fund Strategies, the 2012 American Finance Association meetings, the 2012 Asset Pricing Retreat, the June 2012 Inquire U.K. Conference, the 2014 Annual Society for Financial Econometrics Conference, and the 2014 European Finance Association meetings for valuable comments.

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