Government Bond Market Risk-Return Trade-Off

We analyze the risk-return trade-off for international (France, Germany, Netherlands, Spain, UK, and US) government bond markets and the US stock market. We measure risk by the higher order moments (volatility, skewness, and excess kurtosis) as they are defined in Savva and Theodossiou (2018). There is no risk-return trade-off when considering a linear relationship between returns and risk. When we consider the effects of good and bad volatility separately, the risk-return trade-off is significant and strong for the analyzed government bond and stock markets. The effect from good volatility on returns is positive and the effect from bad volatility is negative