Government bond market risk-return trade-off

Charlotte Christiansen; Christos S. Savva; Charlotte Christiansen; Christos S. Savva

doi:10.3934/QFE.2023013

Quantitative Finance and Economics

2023, Volume 7, Issue 2: 249-260. doi: 10.3934/QFE.2023013

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Research article

Government bond market risk-return trade-off

Charlotte Christiansen ^{1
,
,},
Christos S. Savva ²

1.
Department of Economics and Business Economics, Aarhus University, Fuglesangs Alle 4, 8210 Aarhus V, Denmark
2.
Department of Commerce, Finance and Shipping, Cyprus University of Technology, PO Box 50329, 3603, Limassol, Cyprus

Received: 20 February 2023 Revised: 11 May 2023 Accepted: 16 May 2023 Published: 22 May 2023
JEL Codes: G12, G15

We analyze the risk-return trade-off for international (France, Germany, Netherlands, Spain, UK, and US) government bond markets and the US stock market. We measure risk by the higher order moments (volatility, skewness, and excess kurtosis) as they are defined in Savva and Theodossiou (2018). There is no risk-return trade-off when considering a linear relationship between returns and risk. We consider good and bad volatility separately as defined by threshold regressions and find non-linear risk-return trade-off, that is negative for large lagged returns.
- risk-return trade-off,
- government bond markets,
- good volatility,
- bad volatility
Citation: Charlotte Christiansen, Christos S. Savva. Government bond market risk-return trade-off[J]. Quantitative Finance and Economics, 2023, 7(2): 249-260. doi: 10.3934/QFE.2023013

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Abstract

We analyze the risk-return trade-off for international (France, Germany, Netherlands, Spain, UK, and US) government bond markets and the US stock market. We measure risk by the higher order moments (volatility, skewness, and excess kurtosis) as they are defined in Savva and Theodossiou (2018). There is no risk-return trade-off when considering a linear relationship between returns and risk. We consider good and bad volatility separately as defined by threshold regressions and find non-linear risk-return trade-off, that is negative for large lagged returns.

References

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