{"id":7169,"date":"2018-09-25T12:47:52","date_gmt":"2018-09-25T10:47:52","guid":{"rendered":"https:\/\/www.uni.lu\/fr\/events\/mind-the-convergence-gap-forward-rates-strike-back\/"},"modified":"2018-09-25T12:47:52","modified_gmt":"2018-09-25T10:47:52","slug":"mind-the-convergence-gap-forward-rates-strike-back","status":"publish","type":"events","link":"https:\/\/www.uni.lu\/fr\/events\/mind-the-convergence-gap-forward-rates-strike-back\/","title":{"rendered":"Mind the (Convergence) Gap: Forward Rates Strike Back!"},"content":{"rendered":"<section class=\"wp-block-unilux-blocks-free-section section\"><div class=\"container xl:max-w-screen-xl\"><p>Abstract<\/p><p>If a variable other than forward rates predicts future bond excess<\/p><p>returns, it must also provide information on the future path of<\/p><p>yields. We show that the difference between the natural rate of<\/p><p>interest and the current level of monetary policy stance, dubbed<\/p><p>Convergence Gap (CG), forecasts changes in yields and helps<\/p><p>identify whether forward rates reflect expectations of future yields<\/p><p>or risk premia. Compared to a model with only forward rates,<\/p><p>adding the CG significantly raises the R2 in the forecasting<\/p><p>regression of bond excess returns and delivers bond risk premia<\/p><p>that are more countercyclical. The importance of CG remains<\/p><p>robust out-of-sample, and in countries other than the U.S.<\/p><p>Further, its inclusion brings significant economic gains in the<\/p><p>context of dynamic conditional asset allocation. Overall, our<\/p><p>results suggest that forward rates remain the predominant<\/p><p>predictors of bond risk premia once the effect of time-varying<\/p><p>expected yield changes is properly controlled for.<\/p><\/div><\/section>","protected":false},"excerpt":{"rendered":"<p>AbstractIf a variable other than forward rates predicts future bond excessreturns, it must also provide information on the future path ofyields. We show that the difference between the natural rate ofinterest and the current level of monetary policy stance, dubbedConvergence Gap (CG), forecasts changes in yields and helpsidentify whether forward rates reflect expectations of future yieldsor risk premia. Compared to a model with only forward rates,adding the CG significantly raises the R2 in the forecastingregression of bond excess returns and delivers bond risk premiathat are more countercyclical. The importance of CG remainsrobust out-of-sample, and in countries other than the U.S.Further, its inclusion brings significant economic gains in thecontext of dynamic conditional asset allocation. Overall, ourresults suggest that forward rates remain the predominantpredictors of bond risk premia once the effect of time-varyingexpected yield changes is properly controlled for.<\/p>\n","protected":false},"author":0,"featured_media":7170,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"closed","template":"","format":"standard","meta":{"featured_image_focal_point":[],"show_featured_caption":false,"ulux_newsletter_groups":"","uluxPostTitle":"","uluxPrePostTitle":"","_trash_the_other_posts":false,"_price":"","_stock":"","_tribe_ticket_header":"","_tribe_default_ticket_provider":"","_tribe_ticket_capacity":"0","_ticket_start_date":"","_ticket_end_date":"","_tribe_ticket_show_description":"","_tribe_ticket_show_not_going":false,"_tribe_ticket_use_global_stock":"","_tribe_ticket_global_stock_level":"","_global_stock_mode":"","_global_stock_cap":"","_tribe_rsvp_for_event":"","_tribe_ticket_going_count":"","_tribe_ticket_not_going_count":"","_tribe_tickets_list":"[]","_tribe_ticket_has_attendee_info_fields":false,"event_start_date":"2018-10-11 12:30:00","event_end_date":"2018-10-11 13:45:00","event_speaker_name":"Andrea Tamoni - London School of Economics","event_speaker_link":"","event_is_online":false,"event_location":"Luxembourg School of Finance\r\nJFK Building \r\n29,Avenue J.F Kennedy\r\nL-1855 Luxembourg\r\nGround Floor, Nancy Room","event_street":"","event_location_link":"","event_zip_code":"","event_city":"","event_country":"LU"},"events-topic":[309],"events-type":[],"organisation":[116,101,226],"authorship":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.3 (Yoast SEO v22.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Mind the (Convergence) Gap: Forward Rates Strike Back! - Universit\u00e9 du Luxembourg<\/title>\n<meta name=\"description\" content=\"AbstractIf a variable other than forward rates predicts future bond excessreturns, it must also provide information on the future path ofyields. We show that the difference between the natural rate ofinterest and the current level of monetary policy stance, dubbedConvergence Gap (CG), forecasts changes in yields and helpsidentify whether forward rates reflect expectations of future yieldsor risk premia. Compared to a model with only forward rates,adding the CG significantly raises the R2 in the forecastingregression of bond excess returns and delivers bond risk premiathat are more countercyclical. The importance of CG remainsrobust out-of-sample, and in countries other than the U.S.Further, its inclusion brings significant economic gains in thecontext of dynamic conditional asset allocation. Overall, ourresults suggest that forward rates remain the predominantpredictors of bond risk premia once the effect of time-varyingexpected yield changes is properly controlled for.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.uni.lu\/fr\/events\/mind-the-convergence-gap-forward-rates-strike-back\/\" \/>\n<meta property=\"og:locale\" content=\"fr_FR\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Mind the (Convergence) Gap: Forward Rates Strike Back!\" \/>\n<meta property=\"og:description\" content=\"AbstractIf a variable other than forward rates predicts future bond excessreturns, it must also provide information on the future path ofyields. We show that the difference between the natural rate ofinterest and the current level of monetary policy stance, dubbedConvergence Gap (CG), forecasts changes in yields and helpsidentify whether forward rates reflect expectations of future yieldsor risk premia. Compared to a model with only forward rates,adding the CG significantly raises the R2 in the forecastingregression of bond excess returns and delivers bond risk premiathat are more countercyclical. The importance of CG remainsrobust out-of-sample, and in countries other than the U.S.Further, its inclusion brings significant economic gains in thecontext of dynamic conditional asset allocation. 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