Thornton, Daniel L.; Valente, Giorgio - Federal Reserve Bank of St. Louis - 2009
This paper investigates the source of predictability of bond risk premia by means of long-term forward interest rates … bond prices. We show that the predictive ability of forward rates could be due to the high serial correlation and cross …-correlation of bond prices. After a simple reparametrization of models used to predict spot rates or excess returns, we find that …