The Term Structure of the Risk–Return Trade-Off
Date
2005
Author(s)
Publisher
CFA Institute
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Citation
Campbell, John Y., and Luis M. Viceira. 2005. “The Term Structure of the Risk–Return Trade-Off.” Financial Analysts Journal 61 (1) (January): 34–44. doi:10.2469/faj.v61.n1.2682.
Abstract
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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