Time-Varying Risk and Return in the Bond Market: A Test of a New Equilibrium Pricing Model Export

@article{citeulike:6045207, abstract = {This article uses bond market data to empirically test the asset pricing model of Kazemi (1992). According to this model the rate of return on a long-term, pure-discount, default-free bond will be perfectly correlated with changes in the marginal utility of the representative investor. The covariability between financial asset returns and returns on such a bond can therefore serve as a measure of the riskiness of assets. The aim of this study is to determine whether the model can explain cross-sectional differences in the monthly returns of bonds with different maturity dates. We estimate and test the restrictions imposed by the model on returns of default-free bonds, while allowing the conditional distribution of bond returns to be time varying. The model is rejected during the full sample period (1973-1995) and the subperiod (1973-1980) when the Federal Reserve's focus is on interest rates, while the model is not rejected during the subperiod (1981-1995) when the Federal Reserve's focus is on money supply.}, author = {Campbell, Cynthia J. and Kazemi, Hossein B. and Nanisetty, Prasad}, citeulike-article-id = {6045207}, citeulike-linkout-0 = {http://ssrn.com/abstract=161667}, citeulike-linkout-1 = {http://papers.ssrn.com/sol3/Delivery.cfm/.pdf?abstractid=161667&mirid=1}, day = {19}, journal = {Social Science Research Network Working Paper Series}, keywords = {bond, equilibrium, market, model, pricing, return, risk, time-varying}, month = {May}, posted-at = {2009-10-30 22:29:56}, priority = {2}, publisher = {SSRN}, title = {Time-Varying Risk and Return in the Bond Market: A Test of a New Equilibrium Pricing Model}, url = {http://ssrn.com/abstract=161667}, year = {1999} }

TY - JOUR ID - citeulike:6045207 L3 - citeulike-article-id:6045207 N2 - This article uses bond market data to empirically test the asset pricing model of Kazemi (1992). According to this model the rate of return on a long-term, pure-discount, default-free bond will be perfectly correlated with changes in the marginal utility of the representative investor. The covariability between financial asset returns and returns on such a bond can therefore serve as a measure of the riskiness of assets. The aim of this study is to determine whether the model can explain cross-sectional differences in the monthly returns of bonds with different maturity dates. We estimate and test the restrictions imposed by the model on returns of default-free bonds, while allowing the conditional distribution of bond returns to be time varying. The model is rejected during the full sample period (1973-1995) and the subperiod (1973-1980) when the Federal Reserve's focus is on interest rates, while the model is not rejected during the subperiod (1981-1995) when the Federal Reserve's focus is on money supply. JF - Social Science Research Network Working Paper Series TI - Time-Varying Risk and Return in the Bond Market: A Test of a New Equilibrium Pricing Model PB - SSRN KW - bond KW - equilibrium KW - market KW - model KW - pricing KW - return KW - risk KW - time-varying AU - Campbell, Cynthia AU - Kazemi, Hossein AU - Nanisetty, Prasad PY - 1999/May/19/ UR - http://ssrn.com/abstract=161667 ER -