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Out-of-Sample Predictions of Bond Excess Returns and Forward Rates: An Asset-Allocation Perspective

This paper investigates the out-of-sample predictability of bond excess returns. We assess the economic value of the forecasting ability of empirical models based on long-term forward interest rates in a dynamic asset allocation strategy. The results show that the information content of forward rates does not generate systematic economic value to investors. Indeed, these models do not outperform the no-predictability benchmark. Furthermore, their relative performance deteriorates over time.

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https://doi.org/10.20955/wp.2010.034

https://doi.org/10.1093/rfs/hhs069