The Volatility of Long-Term Bond Returns: Persistent Interest Shocks and Time-Varying Risk Premiums
| Autor: | Daniela Osterrieder, Peter C. Schotman |
|---|---|
| Přispěvatelé: | Finance, RS: GSBE EFME |
| Jazyk: | angličtina |
| Rok vydání: | 2017 |
| Předmět: |
Economics and Econometrics
Spot contract Financial economics media_common.quotation_subject Risk premium INTEREST-RATES LOCAL WHITTLE ESTIMATION Volatility risk premium 0502 economics and business Mean reversion Econometrics Economics 050207 economics 050205 econometrics media_common Factor analysis INTERNATIONAL PANEL DATASET INFLATION UNCERTAINTY Stylized fact AFFINE MODELS Bond 05 social sciences FRACTIONAL-INTEGRATION Interest rate STRUCTURE MODELS Yield curve Volatility (finance) UNCERTAINTY EMPIRICAL-EVIDENCE CROSS-SECTION Affine term structure model Social Sciences (miscellaneous) EXPECTATIONS HYPOTHESIS |
| Zdroj: | Review of Economics and Statistics, 99(5), 884-895. MIT Press Journals Osterrieder, D & Schotman, P C 2017, ' The volatility of long-term bond returns : Persistent interest shocks and time-varying risk premiums ', Review of Economics and Statistics, vol. 99, no. 5, pp. 884-895 . https://doi.org/10.1162/REST_a_00624 |
| ISSN: | 0034-6535 |
| DOI: | 10.1162/REST_a_00624 |
| Popis: | We develop a model that can match two stylized facts of the term-structure. The first stylized fact is the predictability of excess returns on long-term bonds. Modeling this requires sufficient volatility and persistence in the price of risk. The second stylized fact is that long-term yields are dominated by a level factor, which requires persistence in the spot interest rate. We find that a fractionally integrated process for the short rate plus a fractionally integrated specification for the price of risk leads to an analytically tractable almost affine term structure model that can explain the stylized facts. In a decomposition of long-term bond returns we find that the expectations component from the level factor is more volatile than the returns themselves. It therefore takes a volatile risk premium that is negatively correlated with innovations in the level factor to explain the volatility of long-term bond returns. The model also implies that excess bond returns do not exhibit mean reversion, consistent with the empirical evidence. |
| Databáze: | OpenAIRE |
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