We examine whether the predictability and business-cycle dependence of excess returns in US Treasuries can be more naturally explained in terms of state-dependent risk premia or a specific cognitive bias (representativeness). We show that the extremely parsimonious cognitive-bias model in...

We present a simple model that can account for the salient empirical features of the well-docuemented dependence of excess returns in Treasuries on the slope of the yield curve. In the model we propose, investors guess correctly the direction of changes in the path of the target rate decided by...

We present a stochastic-market-risk extension of a popular doubly-mean-reverting Vasicek model. The model straddles the P and Q measures. By allowing for a stochastic market price of risk, we break the determninisitc link between the return-predicting factor and the market-price of risk, but we...