Engsted, Tom; Pedersen, Thomas Q.; Tanggaard, Carsten - School of Economics and Management, University of Aarhus - 2010
Based on Chen and Zhao's (2009) criticism of VAR based return decompositions, we explain in detail the various limitations and pitfalls involved in such decompositions. First, we show that Chen and Zhao's interpretation of their excess bond return decomposition is wrong: the residual component...
