We develop a model that can match two stylized facts of the term-structure. The first stylized fact is the predictability of excess returns on long-term bonds. Modeling this requires sufficient volatility and persistence in the price of risk. The second stylized fact is that long-term yields are...

We develop a model that can match two stylized facts of the term-structure. The first stylized fact is the predictability of excess returns on long-term bonds. Modeling this requires sufficient volatility and persistence in the price of risk. The second stylized fact is that long-term yields are...

Empirical studies suggest that the equity premium term structure is downward sloping. By deriving a closed form dividend strips pricing formula in a heterogeneous-agent economy, we show that when some investors are over-pessimistic, typically in a bear market:1) short-maturity dividend strips...

We advocate the use of excess returns rather than yields or log prices in analysing the risk neutral dynamics of the term structure. We show that under standard assumptions, excess returns are affine in the risk neutral innovations in the factors. This framework has several important advantages....

Bond skewness and coskewness (i.e., bond return comovement with market volatility) are both time varying, with cross-sectional variation driven by maturity and credit rating. Other things being equal, longer maturity bonds have lower skewness, and lower coskewness with respect to the bond market...

Using monthly returns to estimate portfolio alphas and betas is inappropriate for investors with longer horizons. Alphas and betas have flat term structures only under special conditions that do not hold generally. The paper develops a novel conditional moment estimation method that is simple,...

This paper offers an explanation for the properties of the nominal term structure of interest rates and time-varying bond risk premia based on a model with rare consumption disaster risk. In the model, consumption is subject to large negative jumps (disasters), and these disasters are sometimes...

In contrast to prior equity market results, we document that corporate bonds issued by low profitability firms outperform bonds issued by highly profitable firms. This performance difference is primarily driven by low profitability, low credit rating firms. This profitability premium is...

This paper estimates the term-structure of volatility risk premia for the stock market. Realized variance term premia are increasing in systematic risk and predict variance swap returns. Implied volatility term premia are decreasing in risk initially, but then increase at a lag, predicting VIX...

We show that at-the-money implied volatility of options on futures of 5-year Treasury notes (Treasury ‘yield implied volatility') predicts both the growth rate and volatility of gross domestic product, as well as of other macroeconomic variables, like industrial production, consumption, and...