RT Journal Article
SR Electronic
T1 The Supply and Demand Factor in the Bond Market:
Implications for Bond Risk and Return
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 62
OP 81
DO 10.3905/jfi.2013.23.2.062
VO 23
IS 2
A1 Longzhen Fan
A1 Canlin Li
A1 Guofu Zhou
YR 2013
UL https://pm-research.com/content/23/2/62.abstract
AB In the United States and United Kingdom, the supply of bonds is occasionally found to have a substantial pricing impact that is not accounted for by popular term structure models. In emerging markets, where the supply factor can be much more pronounced, the authors show that the pricing effects are even greater and constantly present. They propose ways to modify the standard affine models to account for the supply effects, thereby yielding much smaller pricing errors and predicting better the time variation of risk. The results are of substantial economic significance for global bond portfolios in managing risk and boosting expected returns.TOPICS: Fixed income and structured finance, quantitative methods, developed