TY  - UNPD
A1  - Dockner, Engelbert J.
A1  - Mayer, Manuel
A1  - Zechner, Josef
T1  - Sovereign bond risk premiums
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2013,28
N2  - Credit risk has become an important factor driving government bond returns. We therefore introduce an asset pricing model which exploits information contained in both forward interest rates and forward CDS spreads. Our empirical analysis covers euro-zone countries with German government bonds as credit risk-free assets. We construct a market factor from the first three principal components of the German forward curve as well as a common and a country-specific credit factor from the principal components of the forward CDS curves. We find that predictability of risk premiums of sovereign euro-zone bonds improves substantially if the market factor is augmented by a common and an orthogonal country-specific credit factor. While the common credit factor is significant for most countries in the sample, the country-specific factor is significant mainly for peripheral euro-zone countries. Finally, we find that during the current crisis period, market and credit risk premiums of government bonds are negative over long subintervals, a finding that we attribute to the presence of financial repression in euro-zone countries.
T3  - CFS working paper series - 2013, 28 
KW  - sovereign bond risk premiums
KW  - market and credit risk factors
KW  - financial repression
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32505
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-325051
IS  - May 2013
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -