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Bond risk premia in a small open economy with volatile capital flows: The case of Korea
- Title
- Bond risk premia in a small open economy with volatile capital flows: The case of Korea
- Authors
- Yun, Jaeho
- Ewha Authors
- 윤재호
- SCOPUS Author ID
- 윤재호
- Issue Date
- 2019
- Journal Title
- JOURNAL OF INTERNATIONAL MONEY AND FINANCE
- ISSN
- 0261-5606
1873-0639
- Citation
- JOURNAL OF INTERNATIONAL MONEY AND FINANCE vol. 93, pp. 223 - 243
- Keywords
- Bond risk premia; Korean government bonds; Macro factors; Global liquidity factors
- Publisher
- ELSEVIER SCI LTD
- Indexed
- SSCI; SCOPUS
- Document Type
- Article
- Abstract
- This paper investigates bond risk premia embedded in Korean government bonds. Unlike the U.S., Korea is a small open economy characterized by highly volatile capital flows and non-reserve currency country. My empirical findings show that among alternative predictive variables (including the macro and global liquidity factors) for one-year-ahead excess bond returns, the global liquidity factors, extracted from the panel data set of various global liquidity variables, are the only predictors that perform well across both in- and out-of-sample forecast analysis. In a similar vein, the regression analysis for the determinants of the estimated bond risk premia (with both monthly and quarterly frequencies) reveals that similar to the case of U.S. bond market, the risk premia in Korean government bonds are affected by domestic expected inflation, but more importantly, that they are affected heavily by the global liquidity variables, such as VIX, bank capital flows and the leverage of global banks. (C) 2019 Elsevier Ltd. All rights reserved.
- DOI
- 10.1016/j.jimonfin.2019.01.007
- Appears in Collections:
- 사회과학대학 > 경제학전공 > Journal papers
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