Author: John Elder
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
Book Description
This paper investigates the extent to which observable macroeconomic factors can explain the time-varying risk premia in the short-end of the term structure. The empirical model we employ is motivated by a dynamic asset pricing model with time-invariant reward-to-risk measures and time-varying risk premia. Our results indicate that two factors, based innovations in the federal funds rate and shifts in the yield curve, explain up to 65% of the temporal variation in Treasury bill returns. We also find that shifts in the yield curve factor may explain some time-variation in risk premia at the very short end of the term structure, and that the federal funds rate factor may be weakly linked to the time-varying risk premia over the post-1966 sample, when the federal funds market first began to function as a major source of bank liquidity. This latter result, however, is somewhat sensitive to the sample period.
Sources of Time-Varying Risk Premia in the Term Structure
Author: John Elder
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
Book Description
This paper investigates the extent to which observable macroeconomic factors can explain the time-varying risk premia in the short-end of the term structure. The empirical model we employ is motivated by a dynamic asset pricing model with time-invariant reward-to-risk measures and time-varying risk premia. Our results indicate that two factors, based innovations in the federal funds rate and shifts in the yield curve, explain up to 65% of the temporal variation in Treasury bill returns. We also find that shifts in the yield curve factor may explain some time-variation in risk premia at the very short end of the term structure, and that the federal funds rate factor may be weakly linked to the time-varying risk premia over the post-1966 sample, when the federal funds market first began to function as a major source of bank liquidity. This latter result, however, is somewhat sensitive to the sample period.
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
Book Description
This paper investigates the extent to which observable macroeconomic factors can explain the time-varying risk premia in the short-end of the term structure. The empirical model we employ is motivated by a dynamic asset pricing model with time-invariant reward-to-risk measures and time-varying risk premia. Our results indicate that two factors, based innovations in the federal funds rate and shifts in the yield curve, explain up to 65% of the temporal variation in Treasury bill returns. We also find that shifts in the yield curve factor may explain some time-variation in risk premia at the very short end of the term structure, and that the federal funds rate factor may be weakly linked to the time-varying risk premia over the post-1966 sample, when the federal funds market first began to function as a major source of bank liquidity. This latter result, however, is somewhat sensitive to the sample period.
Macroeconomic Sources of Risk and Time-varying Risk Premia in the Term Structure of Interest Rates
Author: Sang-Sub Lee
Publisher:
ISBN:
Category :
Languages : en
Pages : 270
Book Description
Publisher:
ISBN:
Category :
Languages : en
Pages : 270
Book Description
Expectation Puzzles, Time-varying Risk Premia, and Dynamic Models of the Term Structure
Author: Qiang Dai
Publisher:
ISBN:
Category : Bond yields - Forecasting
Languages : en
Pages : 32
Book Description
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory, ' we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and Campbell and Shiller, among others, within large subclasses of affine and quadratic-Gaussian term structure models. Additionally, we show that certain risk-premium adjusted' projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models. Key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly, and not only through the factor volatilities. The risk premiums have a simple form consistent with Fama's findings on the predictability of forward rates, and are shown to also be consistent with interest rate, feedback rules used by a monetary authority in setting monetary policy
Publisher:
ISBN:
Category : Bond yields - Forecasting
Languages : en
Pages : 32
Book Description
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory, ' we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and Campbell and Shiller, among others, within large subclasses of affine and quadratic-Gaussian term structure models. Additionally, we show that certain risk-premium adjusted' projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models. Key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly, and not only through the factor volatilities. The risk premiums have a simple form consistent with Fama's findings on the predictability of forward rates, and are shown to also be consistent with interest rate, feedback rules used by a monetary authority in setting monetary policy
Sources of Time Varying Risk and Risk Premia in U.S. Stock and Bond Markets
Author: Bala Arshanapalli
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
Book Description
This paper investigates the sources of time-varying risk and risk premia for both the U.S. stock and bond markets. Although a growing literature has emerged that examines the return and volatility characteristics of the U.S. stock and bond markets separately, little work has appeared that models these markets jointly. This paper proposes a model that provides evidence concerning the sources of time varying risk and risk premia in the markets that considers both markets simultaneously. The model captures the change in the risk premium to each market's own volatility risk as well as to the covariance risk for specific events. We test for the effects of macroeconomic news on time-varying volatility as well as time-varying covariance, and whether such news induces time-varying risk premia in either of the markets. We find that stocks, as opposed to bonds exhibit a change in the risk premium on variance risk on PPI announcement dates. There is also evidence of a change in the bond risk premium on covariance risk on macroeconomic news announcement dates. Employment reports and PPI releases appear as events inducing time-varying conditional variance for stock, Treasury Notes, as well as Treasury Bond returns. Finally, the results do not support the conjecture that conditional covariance of stock and bond returns falls on announcement days.
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
Book Description
This paper investigates the sources of time-varying risk and risk premia for both the U.S. stock and bond markets. Although a growing literature has emerged that examines the return and volatility characteristics of the U.S. stock and bond markets separately, little work has appeared that models these markets jointly. This paper proposes a model that provides evidence concerning the sources of time varying risk and risk premia in the markets that considers both markets simultaneously. The model captures the change in the risk premium to each market's own volatility risk as well as to the covariance risk for specific events. We test for the effects of macroeconomic news on time-varying volatility as well as time-varying covariance, and whether such news induces time-varying risk premia in either of the markets. We find that stocks, as opposed to bonds exhibit a change in the risk premium on variance risk on PPI announcement dates. There is also evidence of a change in the bond risk premium on covariance risk on macroeconomic news announcement dates. Employment reports and PPI releases appear as events inducing time-varying conditional variance for stock, Treasury Notes, as well as Treasury Bond returns. Finally, the results do not support the conjecture that conditional covariance of stock and bond returns falls on announcement days.
Expectations Puzzle, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
Author: Qiang Dai
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
Book Description
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional quot;expectations theory,quot; we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and Campbell and Shiller, among others, within large subclasses of affine and quadratic-Gaussian term structure models. Key to this matching are parameterizations of the market prices of risk that let us separately quot;controlquot; the shape of the mean yield curve and the correlation structure of excess returns with the slope of the yield curve. The risk premiums have a simple form consistent with Fama's findings on the predictability of forward rates, and are shown to also be consistent with interest rate, feedback rules used by a monetary authority in setting monetary policy.
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
Book Description
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional quot;expectations theory,quot; we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and Campbell and Shiller, among others, within large subclasses of affine and quadratic-Gaussian term structure models. Key to this matching are parameterizations of the market prices of risk that let us separately quot;controlquot; the shape of the mean yield curve and the correlation structure of excess returns with the slope of the yield curve. The risk premiums have a simple form consistent with Fama's findings on the predictability of forward rates, and are shown to also be consistent with interest rate, feedback rules used by a monetary authority in setting monetary policy.
Stochastic Discount Factor Models of the Term Structure
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 226
Book Description
Publisher:
ISBN:
Category :
Languages : en
Pages : 226
Book Description
The Maturity Structure of Term Premia with Time-varying Expected Returns
Author: Mark A. Hooker
Publisher:
ISBN:
Category : Government securities
Languages : en
Pages : 50
Book Description
Publisher:
ISBN:
Category : Government securities
Languages : en
Pages : 50
Book Description
Time-varying Risk Premia in the Term Structure of Interest Rates in New Zealand
Author: Dimitris Margaritis
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 32
Book Description
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 32
Book Description
Time-varying Risk Premia, Sources of Macroeconomic Risk, and Aggregate Stock Market Behavior
Author: Massimiliano De Santis
Publisher:
ISBN:
Category :
Languages : en
Pages : 334
Book Description
Publisher:
ISBN:
Category :
Languages : en
Pages : 334
Book Description
Do Stationary Risk Premia Explain It All?
Author: Karen K. Lewis
Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Most studies of the expectations theory of the term structure reject the model. However, the significance of the rejections depend strongly upon the form of the test. In this paper, we use the pattern of rejection across maturities to back out the implied behavior of time-varying risk premia and/or market forecasts. We then use a new technique to test whether stationary risk premia alone can be responsible for these rejections. Surprisirj1y, this test is rejected for short maturities up to 6 months, suggesting that time-varying risk premia do not explain it all. We also describe hew this method can be used to test other asset pricing relationships.
Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Most studies of the expectations theory of the term structure reject the model. However, the significance of the rejections depend strongly upon the form of the test. In this paper, we use the pattern of rejection across maturities to back out the implied behavior of time-varying risk premia and/or market forecasts. We then use a new technique to test whether stationary risk premia alone can be responsible for these rejections. Surprisirj1y, this test is rejected for short maturities up to 6 months, suggesting that time-varying risk premia do not explain it all. We also describe hew this method can be used to test other asset pricing relationships.