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The Term Structure of the Forward Premium
Hakkio, Craig S. - 2013
. The paper proposes an equilibrium theory of the term structure of the forward premium. By combining the theory of the term … expression for the expected one month forward premium. The theory will then impose highly non-linear cross equation restrictions … indicate that the data are consistent with the theory for Germany and inconsistent with the theory for Canada …
Persistent link: https://www.econbiz.de/10012754712
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Arbitrage-Free Bond Pricing with Dynamic Macroeconomic Models
Gallmeyer, Michael F. - 2010
We examine the relationship between monetary-policy-induced changes in short interest rates and yields on long-maturity default-free bonds. The volatility of the long end of the term structure and its relationship with monetary policy are puzzling from the perspective of simple structural...
Persistent link: https://www.econbiz.de/10012759951
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Risk Premia and Term Premia in General Equilibrium
Abel, Andrew B. - 2000
The equity premium consists of a term premium reflecting the longer maturity of equity relative to short-term bills, and a risk premium reflecting the stochastic nature of equity payoffs and the deterministic nature of payoffs on reckless bills. This paper analyzes term premia and the risk...
Persistent link: https://www.econbiz.de/10012788989
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Bond Risk Premia in Consumption-Based Models
Creal, Drew - 2016
Workhorse Gaussian affine term structure models (ATSMs) attribute time-varying bond risk premia entirely to changing prices of risk, while structural models with recursive preferences credit it completely to stochastic volatility. We reconcile these competing channels by introducing a novel form...
Persistent link: https://www.econbiz.de/10012993847
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A Simple Test of the Effect of Interest Rate Defense
Drazen, Allan - 2007
High interest rates to defend the exchange rate signal that a government is committed to fixed exchange rates, but may also signal weak fundamentals. We test the effectiveness of the interest rate defense by disaggregating into the effects on future interest rates differentials, expectations of...
Persistent link: https://www.econbiz.de/10012778233
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Risk, Uncertainty and Asset Prices
Bekaert, Geert - 2006
We identify the relative importance of changes in the conditional variance of fundamentals (which we call %u201Cuncertainty%u201D) and changes in risk aversion (%u201Crisk%u201D for short) in the determination of the term structure, equity prices and risk premiums. Theoretically, we introduce...
Persistent link: https://www.econbiz.de/10012780066
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Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
Dai, Qiang - 2001
traditional expectations theory,' we show that these findings are not puzzling relative to a large class of richer dynamic term …
Persistent link: https://www.econbiz.de/10012787777
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Taxes, Default Risk, and Yield Spreads
Yawitz, Jess B. - 2008
This paper represents an extension and integration of recent empirical and theoretical research on default risk and taxability. The purpose of the paper is to develop and test a model of interest rate spreads which incorporates both the effect of taxes and differences in default probabilities in...
Persistent link: https://www.econbiz.de/10012774733
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Specification Analysis of Affine Term Structure Models
Dai, Qiang - 2008
This paper characterizes, interprets, and tests the over-identifying restrictions imposed in affine models of the termquot; structure. Letting r(t) = euml; Y(t), where Y is an unobserved vector affine process, our analysis proceeds in three steps. First, we show that affine models can be...
Persistent link: https://www.econbiz.de/10012774938
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The Term Structure of Currency Carry Trade Risk Premia
Lustig, Hanno N. - 2013
Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases. The local currency term premia, which increase with the maturity, offset the currency risk premia. The time-series predictability of foreign bond returns in dollars...
Persistent link: https://www.econbiz.de/10013073193