The term structure of the risk–return trade-off
JY Campbell, LM Viceira - Financial Analysts Journal, 2005 - Taylor & Francis
Financial Analysts Journal, 2005•Taylor & Francis
Expected excess returns on bonds and stocks, real interest rates, and risk shift over time in
predictable ways. Furthermore, these shifts tend to persist for long periods. Changes in
investment opportunities can alter the risk–return trade-off of bonds, stocks, and cash across
investment horizons, thus creating a “term structure” of the risk–return trade-off. This term
structure can be extracted from a parsimonious model of return dynamics, as is illustrated
with data from the US stock and bond markets.
predictable ways. Furthermore, these shifts tend to persist for long periods. Changes in
investment opportunities can alter the risk–return trade-off of bonds, stocks, and cash across
investment horizons, thus creating a “term structure” of the risk–return trade-off. This term
structure can be extracted from a parsimonious model of return dynamics, as is illustrated
with data from the US stock and bond markets.
Expected excess returns on bonds and stocks, real interest rates, and risk shift over time in predictable ways. Furthermore, these shifts tend to persist for long periods. Changes in investment opportunities can alter the risk–return trade-off of bonds, stocks, and cash across investment horizons, thus creating a “term structure” of the risk–return trade-off. This term structure can be extracted from a parsimonious model of return dynamics, as is illustrated with data from the U.S. stock and bond markets.
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