RT Journal Article
SR Electronic
T1 Forecasting Bond Returns Using Jumps in Intraday Prices
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 80
OP 90
DO 10.3905/jfi.2011.20.4.080
VO 20
IS 4
A1 Johan Duyvesteyn
A1 Martin Martens
A1 Siawash Safavi Nic
YR 2011
UL https://pm-research.com/content/20/4/80.abstract
AB This article builds on the work of previous researchers who showed that the average jump mean in bond prices can predict excess bond returns, capturing the countercyclical behavior of risk premia. We show that these jumps often take place at 8:30 and 10:00, directly linking them to specific macroeconomic news announcements. Mean reversion, which looks at the total return over the past period rather than just the part related to jumps, has no predictive ability. Hence it is important to consider excess returns related to macroeconomic announcements that matter to market participants, and jumps are a good market proxy for what investors believe is important news. Our improved jump measure produces a Sharpe ratio of 0.52 in an out-of-sample market-neutral investment strategy.TOPICS: Fixed-income portfolio management, statistical methods, volatility measures