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KDI - Korea Development Institute

KDI - Korea Development Institute



Policy Study Analysis on the Effectiveness of Bond Price Information for Economic Forecast December 31, 2007


Series No. 2007-10

Policy Study KOR Analysis on the Effectiveness of Bond Price Information for Economic Forecast #Asset Pricing
DOI P-ISBN978-89-8063-331-9

December 31, 2007

  • KDI
    Joonhyuk Song
  • KDI
In general, interest rate spread in the bond market is divided into expectation on the changes in short-term rate of the future and term premium according to liquidity preference and market volatility. Based on this structure, this study intends to see how meaningful the rates of return in the bond market are to forecasting economic fluctuations. To that end, the study reviews whether the expectations hypothesis is applicable and derives the return forecasting factor through the excess holding period return. Then it theoretically proves that the factor is a concept relating to volatility of the bond market. It also studies the leading effect that the factor has on macroeconomic indicators and the significance of the factor as a recession forecasting indicator.

An examination of the expectations hypothesis using data on Korean bonds empirically proves that like the US, the expectations hypothesis does not hold in Korea, either. This means that there are some factors that could explain excess return. Based on this, the study assumes the return forecasting factor as a measure for term premium, and examines how important the factor is in predicting changes in economic fluctuation and cycle. The empirical analysis reveals that the factor has forecasting power of 20~50% for the business cycle indexes; industrial production gap, and inflation. Also, in the probability model of recession forecasting that uses a Probit model, the factor shows different patterns according to different economic cycle, proving that the return forecasting factor is useful as recession forecasting indicator compared to the stock return that changes similarly regardless of which economic cycle.

This study has two important contributions. First, unlike preceding studies, it explicitly describes the financial meaning of the return forecasting factor derived from the excess holding period return. Second, it empirically proves the return forecasting factor has a significant leading effect on macroeconomic indicators. It is found that the stock return used for comparison is an indicator only to present short-term outlook, while the return forecasting factor is useful in portraying around one-year outlook.

With the Capital Market Consolidation Act taking into effect, this study could provide implications on how to use the information on stock and bond markets. In particular, considering that information on the bond market has a stronger forecasting power when it comes to long-term outlook, it is expected that the bond market information could be actively used as a predictor that complements the current leading economic indicators.
제1장 서 론

제2장 금융지표들과 경기변동 간의 관계
 제1절 이자율과 경기변동
 제2절 주가와 경기변동

제3장 이자율모형을 이용한 요인 분석
 제1절 수익률에 대한 정의
 제2절 기대가설 검정
 제3절 수익률 예측요인의 도출
 제4절 선도이자율 기간프리미엄과 수익률 예측요인

제4장 수익률 예측요인에 대한 해석
 제1절 재무학적인 측면에서의 수익률 예측요인
 제2절 수익률 예측요인과 이자율 변동성

제5장 수익률 예측요인의 경기선행성 분석
 제1절 거시지표에 대한 선행성
 제2절 경기불황 예고지표
 제3절 통화정책과 수익률 예측요인

제6장 결 론

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