James D. Hamilton

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2015-15 | May 1, 2017

A consensus has recently emerged that variables beyond the level, slope, and curvature of the yield curve can help predict bond returns. This paper shows that the statistical tests underlying this evidence are subject to serious small-sample distortions. We propose more robust tests, including a novel bootstrap procedure specifically designed to test the spanning hypothesis. We revisit the analysis in six published studies and find that the evidence against the spanning hypothesis is much weaker than it originally appeared. Our results pose a serious challenge to the prevailing consensus.

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Article Citation

Hamilton, James D., and Michael Bauer. 2015. “Robust Bond Risk Premia,” Federal Reserve Bank of San Francisco Working Paper 2015-15. Available at

About the Author
Michael Bauer
Michael Bauer is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco and research fellow at CEPR. Learn more about Michael Bauer