Recent studies claim that a new generation of return-predicting factors can predict excess returns in the US Treasury market far better than the slope-related factors. The new-generation factors are, however, often difficult to interpret and far less parsimonious, and therefore doubts have been...

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...

In this paper we provide an operational definition of market and funding liquidity, and we introduce a method to create two interpretable liquidity measures, which we associate to these two types of liquidity. The construction is based on creating two parsimonious linear combinations of the many...

We present an essentially affine model with pricipal components as state variables. We show that, once no-arbitrage is imposed, this choice of state variables imposes some unexpected constraints on the reversionspeed matrix, whose N2 elements can be uniquely specified by its N eigenvalues. The...

Different authors find optically very different patterns (‘tents' and ‘bats') when excess returns from US Treasuries are regressed against forward rates. A separate source of disagreement is whether the recent tent-shaped factor found by Cochrane and Piazzesi is fundamentally different from...

We explore from a theoretical and an empirical perspective the value of convexity in the US Treasury market. We present a quasi-model-agnostic approach that is rooted in the existence of some affine model capable of recovering with good accuracy the market yield curve and covariance matrix. As...

This paper presents a simple reformulation of the restricted Cieslak and Povala (2010) return-predicting factor which retains by construction exactly the same (impressive) explanatory power as the original one, but affords an alternative and attractive interpretation. What determines the future...

We look at the dependence of the magnitude of rate moves on the level of rates, and we find a universal relationship that holds across currencies and over a very extended period of time (almost 50 years). For the very low level of rates, we find a proportional behaviour; for rates of an...

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...