02068cam a22002537 4500001000700000003000500007005001700012008004100029100002500070245010000095260006600195490004200261500001500303520100500318530006101323538007201384538003601456690011201492700001601604710004201620830007701662856003801739856003701777w15188NBER20171118093041.0171118s2009 mau||||fs|||| 000 0 eng d1 aLudvigson, Sydney C.12aA Factor Analysis of Bond Risk Premiah[electronic resource] /cSydney C. Ludvigson, Serena Ng. aCambridge, Mass.bNational Bureau of Economic Researchc2009.1 aNBER working paper seriesvno. w15188 aJuly 2009.3 aThis paper uses the factor augmented regression framework to analyze the relation between bond excess returns and the macro economy. Using a panel of 131 monthly macroeconomic time series for the sample 1964:1-2007:12, we estimate 8 static factors by the method of asymptotic principal components. We also use Gibb sampling to estimate dynamic factors from the 131 series reorganized into 8 blocks. Regardless of how the factors are estimated, macroeconomic factors are found to have statistically significant predictive power for excess bond returns. We show how a bias correction to the parameter estimates of factor augmented regressions can be obtained. This bias is numerically trivial in our application. The predictive power of real activity for excess bond returns is robust even after accounting for finite sample inference problems. Forecasts of excess bond returns (or bond risk premia) are countercyclical. This implies that investors are compensated for risks associated with recessions. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class.1 aNg, Serena.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w15188.4 uhttp://www.nber.org/papers/w1518841uhttp://dx.doi.org/10.3386/w15188