An Active Investment Strategy Research Based On Direct Prediction Of Bond Risk Premium

Along with the development of the bond market and advancement of interest rate liberalization reform in our country, demands for predicting bond risk premium in the future are growing higher and higher. This article uses the foreign mature forward rate model to predict excess return of bonds in the future, and then to build positive bond investment strategy on the basis of the prediction results. Finally, the author compare the prediction ability and the investment effect of forward rate model with those of the traditional principal component factor of yield curve model, and good empirical results have been achieved.First of all, on the basis of combing related literature at home and abroad, this paper puts forward the application of the forward rate model to the inter-bank bond market in our country. In this paper, we use the latest domestic bond market data to make regressions, and find that forward rates have significant predictive ability for bond excess returns in the Chinese Treasury bond market, and the ability increases with the maturity of bonds extending. Secondly, this article applies results predicted by forward rate model to construct the active bond investment strategy in order to verify whether the results have practical value. Our empirical results show that whether using Lehmann Weighting Method or Wing Portfolio Method, whether forecast horizon of 1 week or 4 weeks, the portfolio constructed based on the results of forward rate model has a significant investment return. Finally, this paper compares the prediction ability and the investment performance of forward rate model with those of the principal component factor model. From the perspective of the predictive power of models, whether forecast horizon of 1 week or 4 weeks, the forward rate model has greater predictive power than the traditional principal component factor model. From the perspective of the investment performance and investment cost of models, under 1 week forecast horizon, the forward rate model are much better than the principal component factor model. Under 4 weeks forecast horizon, each model has its strong point.