We report that excess returns in the bond market exhibit the same features of short term momentum and long term reversals that are observed in the equity market. We then test whether these findings can be accounted for within a behavioural framework using the expectations of the short yield that are implicit in the term structure of interest rates. By decomposing the excess return into components related to expectation errors and expectation revisions, and extracting these from the term structure of interest rates, we show that momentum and reversals in the bond market can be explained by the well established representativeness and conservatism biases.
|Publisher||Social Science Research Network (SSRN) working paper|
|Number of pages||22|
|Publication status||Published - 9 Aug 2013|
Bibliographical noteAvailable on SSRN
- behavioural economics, term structure, rational expectations