Term structure of interest rates with short-run and long-run risks
| Autor: | Hao Zhou, Olesya V. Grishchenko, Zhaogang Song |
|---|---|
| Rok vydání: | 2022 |
| Předmět: |
Variance risk premium
Statistics and Probability History Economics and Econometrics Interest rate derivative Short run Polymers and Plastics Financial economics media_common.quotation_subject Applied Mathematics Volatility risk premium Liquidity premium Industrial and Manufacturing Engineering Interest rate Computer Science Applications Interest rate risk Economics Econometrics Business Management and Accounting (miscellaneous) Yield curve Business and International Management Finance media_common |
| Zdroj: | The Journal of Finance and Data Science. 8:255-295 |
| ISSN: | 2405-9188 |
| DOI: | 10.1016/j.jfds.2022.09.001 |
| Popis: | Bond returns are time-varying and predictable. What economic forces drive this variation? To answer this long-standing question, we propose a consumption-based model with recursive preferences, long-run risks, and inflation non-neutrality. Our model offers two important insights. First, our model matches well the post-1990 nominal upward-sloping U.S. Treasury yield curve. Second, consistent with our model's implication, variance risk premium based on the U.S. interest rate derivatives data emerges as a strong predictor for short-horizon Treasury excess returns, above and beyond the predictive power of other popular factors. In the model equilibrium, the variance risk premium is related to the short-run risks in the economy, while standard forward-rate-based factors are associated with long-run risks in the economy. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
|