Investigating excess returns from nominal bonds

Chadha, Jagjit S. and Breedon, Francis (2003) Investigating excess returns from nominal bonds. Oxford Bulletin of Economics and Statistics, 65 (1). ISSN 0305-9049. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1111/1468-0084.00043

Abstract

Estimated real returns on nominal bonds show excess returns of some 200 bp over their index-linked equivalent. This paper considers two possible explanations for this large difference. First, we assess the likely inflation risk premium by calibrating a model of optimal bond prices under uncertainty. Employing either of CRRA or Abel (1990) relative consumption utility function to derive the stochastic discount factor and covariation risk, we suggest that the inflation risk component of this excess return is unlikely to be much above 50 bp. Secondly, we find little evidence that these excess returns can be ascribed to consistent expectational errors in predicting inflation

Item Type: Article
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Jagjit Chadha
Date Deposited: 15 Sep 2008 15:17
Last Modified: 01 May 2014 09:16
Resource URI: http://kar.kent.ac.uk/id/eprint/10968 (The current URI for this page, for reference purposes)
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