We investigate here the sensitivity of the stock returns of German financial institutions to changes in the shape of the term structure of interest rates. The standard approach has been to measure the interest rate sensitivity of stock returns by focussing solely on changes in a single interest...

We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique...

This paper analyses theperformance ofmaturity transformation strategiesduring a period of high and low interest rates. Based on German government bond yieldsfrom September 1972 to May 2019,we construct a rolling window of bond ladders where long-term assets are financed by short-term...

We use the term structure of bank CD rates to examine whether maturity-transformation risk is priced into the rates banks offer customers. We find that depositors pay a significant cost for the liquidity provided by bank deposits. This cost is strongly related to the amount of...

In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the...

In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the...

Benchmark models for the term structure and dynamic of the interest rate, having the instantaneous rate as the only state variable, were introduced by Vasicek (V) and Cox-Ingersoll-Ross (CIR). Then the measure of a zero-coupon bond price change with respect to any change of the short-term...

Conducting a Beveridge-Nelson decomposition on exchange rates reveals that the prospective interest rate differential -- the expected infinite sum of future interest rate differentials (i.e., the "prospective'') -- can help predict foreign exchange market excess returns. We find that the...

We derive a simple expression for the sensitivity of duration, convexity, and higher-order bond risk measures to changes in term structure shape parameters. Our analysis enables fixed income portfolio managers to capture the combined effects of term structure level, slope, and curvature shifts...