School of Economics and Finance

No. 688: A Variance Decomposition of Index-Linked Bond Returns

Francis Breedon , Queen Mary, University of London

January 1, 2012

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We undertake a variance decomposition of index-linked bond returns for the US, UK and Iceland. In all cases, news about future excess returns is the key driver though only for Icelandic bonds are returns independent of inflation.

J.E.L classification codes: E43, G12

Keywords:Index-linked bonds, Variance decomposition, Real interest rate