Journal
FINANCIAL ANALYSTS JOURNAL
Volume 61, Issue 1, Pages 34-44Publisher
ASSOC INVESTMENT MANAGEMENT RESEARCH (A I M R)
DOI: 10.2469/faj.v61.n1.2682
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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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