Xiong, Wei; Yan, Hongjun; Financial, Review - School of Management, Yale University - 2007
This paper presents a dynamic equilibrium model of bond markets in which two groups of agents hold heterogeneous … price volatility and contributes to the time variation in bond premia. Our model shows that a modest amount of heterogeneous … expectation can help explain several puzzling phenomena, including the "excessive volatility" of bond yields, the failure of the …