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Article

Forecasting Bond Returns Using Jumps in Intraday Prices

Johan Duyvesteyn, Martin Martens and Siawash Safavi Nic
The Journal of Fixed Income Spring 2011, 20 (4) 80-90; DOI: https://doi.org/10.3905/jfi.2011.20.4.080
Johan Duyvesteyn
is a senior fixed income researcher in the Quantitative Strategies Department at Robeco Asset Management in Rotterdam, The Netherlands.
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  • For correspondence: j.duyvesteyn@robeco.nl
Martin Martens
is an associate professor in the Erasmus School of Economics at Erasmus University and head of fixed income research at Robeco Asset Management in Rotterdam, The Netherlands.
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  • For correspondence: mmartens@ese.eur.nl
Siawash Safavi Nic
was a researcher in the Quantitative Strategies Department at Robeco Asset Management in Rotterdam, The Netherlands.
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  • For correspondence: siawashsn@hotmail.com
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Abstract

This article builds on the work of previous researchers who showed that the average jump mean in bond prices can predict excess bond returns, capturing the countercyclical behavior of risk premia. We show that these jumps often take place at 8:30 and 10:00, directly linking them to specific macroeconomic news announcements. Mean reversion, which looks at the total return over the past period rather than just the part related to jumps, has no predictive ability. Hence it is important to consider excess returns related to macroeconomic announcements that matter to market participants, and jumps are a good market proxy for what investors believe is important news. Our improved jump measure produces a Sharpe ratio of 0.52 in an out-of-sample market-neutral investment strategy.

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The Journal of Fixed Income: 20 (4)
The Journal of Fixed Income
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Spring 2011
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Forecasting Bond Returns Using Jumps in Intraday Prices
Johan Duyvesteyn, Martin Martens, Siawash Safavi Nic
The Journal of Fixed Income Mar 2011, 20 (4) 80-90; DOI: 10.3905/jfi.2011.20.4.080

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Forecasting Bond Returns Using Jumps in Intraday Prices
Johan Duyvesteyn, Martin Martens, Siawash Safavi Nic
The Journal of Fixed Income Mar 2011, 20 (4) 80-90; DOI: 10.3905/jfi.2011.20.4.080
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