2 edition of maturity structure of term premia with time-varying expected returns found in the catalog.
maturity structure of term premia with time-varying expected returns
Mark A. Hooker
|Statement||by Mark A. Hooker.|
|Series||Working paper -- no. 96-4., Working paper (Federal Reserve Bank of Boston) -- no. 96-4.|
|The Physical Object|
|Pagination||19,  p. :|
|Number of Pages||20|
expected futures returns in di§erent ways via the spot and term premia. These ﬁndings also contribute to the debate on the existence of time-varying risk premia in commodity futures markets (e.g., Dusak (), Carter, Rausser, and Schmitz (), and more recently, Frank and Garcia (), as well as references therein) as we ﬁnd spot and. The term structure of interest rates can be an invaluable source of information made in modelling time-varying risk premia in asset markets in general, and the long bond until maturity is the same as the expected return from rolling over a.
The single variable explains between 71% and 89% of yield variance, and its explanatory power is stronger at long maturities. The regression coefficient b n τ is (t-stat = ) at the 1-year maturity and (t-stat = ) at the year maturity, indicating that trend inflation drives the level of the yield curve. The loading above one for the 1-year yield aligns with the estimates of. more information about expected excess returns is containedintheyieldcurve than previously thought, but in a nonlinear way. Keywords: Nonlinear term structure models, Gaussian term structure mod-els, time-varying expected excess returns, stochastic volatility, Sharpe ratios, hidden factors. JEL Classiﬁcation: D51, E43, E52, G
According to the liquidity premium theory of the term structure, A) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a liquidity premium. B) buyers of bonds may prefer bonds of one maturity over another, yet interest rates on bonds of. This paper provides empirical evidence that volatility markets are integrated through the time-varying term structure of variance risk premia. These risk premia predict the returns from selling volatility for different horizons, maturities, and products, including variance swaps, straddles, and VIX futures.
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Research on the behavior of term premia with time-varying expected returns has informally compared predicted values or coefficients from such regressions.
This evidence has indicated that the shape of the maturity-return structure indeed varies across the business by: 7. Maturity structure of term premia with time-varying expected returns. Boston: Federal Reserve Bank of Boston,  (OCoLC) Material Type: Internet resource: Document Type: Book, Internet Resource: All Authors / Contributors: Mark A Hooker.
Hooker, Mark A., "The maturity structure of term premia with time-varying expected returns," The Quarterly Review of Economics and Finance, Elsevier, vol.
39(3. CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): JEL classification codes E43, G 12 Abstract: ~" °This paper analyzes the maturity structure of term premia using McCulloch’s U.S.
Treasury yield curve data fromallowing expected returns-to vary across time. One- three- six- and twelve-month holding period i:et~hrns on maturities up to five years are. The expectations hypothesis states that the expected one-period holding return from a long-term bond mates on bonds of maturity lengths greater than about The expectations hypothesis of the term structure and time-varying risk premia: a panel data approach, Oxford Bulletin of Economics and Statistics, 63, – rates, and time-varying betas by specifying a different discount rate for each different maturity.
Brennan () also considers the problem of discounting cashflows with time-varying expected returns and proposes a term structure of discount rates. Our model significantly generalizes Brennan’s formulation. In. 1. Introduction. Fama a, Fama b and Fama and Bliss () present evidence of rich patterns of variation in expected returns across time and maturities that “stand as challenges or ‘stylized facts’” (Fama, b, p.
) to be explained by dynamic term structure models (DTSMs).A large literature has subsequently elaborated on the inconsistency of these patterns with the. Fama  attributed time-varying risk premia in the term structure of Treasury bill returns to time variation in uncertainty about future nominal short rates (which he equated with future expect-ed inflation rates).
Excess returns on bills, bonds and stock all tend to. The Term Structure of Returns: Facts and Theory Jules H. van Binsbergen and Ralph S.J. Koijen NBER Working Paper No. June JEL No. G12 ABSTRACT We summarize and extend the new literature on the term structure of equity. Short-term equity claims, or dividend strips, have on average significantly higher returns than the aggregate stock.
The analysis is based on a five-factor, no-arbitrage term structure model, described in detail in the references below. The Treasury term premia estimates made available for download here are not official estimates of the Federal Reserve Bank of New York, its president, the Federal Reserve System, or the Federal Open Market Committee.
Current 1-year forward rates on 1- to 5-year U.S. Treasury bonds are information about the current term structure of 1-year expected returns on the bonds, and forward rates track variation through.
I show that expected business conditions consistently affect excess bond returns and that the inclusion of expected business conditions in standard predictive regressions improve forecast performance relative to models using information derived from the current term structure or macroeconomic variables.
expected returns for maturities to 5 years, measured net of the interest rate on a 1-year bond, vary through time. These expected premiums swing from positive to negative, however. On average, the term structure of 1-year expected returns on 1- to 5-year Treasury bonds is flat.
Differences in expected returns are usually interpreted as rewards. Note that the term risk premium is different than other potential premia in bond yields, such as that needed to compensate for default risk. In this discussion, I assume that we are talking about government bonds that are free of default risk, which I will assert applies to the central government bonds of countries like Canada, the United Kingdom, United States (assuming the Tea Party quiets.
Liquidity premium is a premium demanded by investors when any given security cannot be easily converted into cash for its fair market value. When the liquidity premium. Downloadable. Expected returns vary when investors face time-varying investment opportunities. Longrun risk models (Bansal and Yaron ) and no-arbitrage affine models (Duffie, Pan, and Singleton ) emphasize sources of risk that are not observable to the econometrician.
We show that, for both classes of models, the term structure of risk implicit in option prices can reveal these risk. Time-Varying Risk Premia and The Cross Section of Stock Returns (), among many others, show that the dividend yield, the default premium, and the term structure variables such as the term premium and the nominal risk-free rate forecast stock returns.1 Recently, have higher expected returns than large stocks, even after being.
In finance, the yield curve is a curve showing several yields to maturity or interest rates across different contract lengths (2 month, 2 year, 20 year, etc. ) for a similar debt contract. The curve shows the relation between the (level of the) interest rate (or cost of borrowing) and the time to maturity, known as the "term", of the debt for a given borrower in a given currency.
Expected returns vary whenever investors face time-varying investment opportunities. For example, in Merton (), the premium between equilibrium expected returns on equity and the risk-free rate, EPt, is proportional to the conditional variance of wealth, σ2 t, EPt =.
The Maturity Structure of Term Premia with Time-Varying Expected Returns By Mark A. Hooker Full Text Document (pdf). We can also ask the opposite question, i.e., what is the risk premium for maturity, rp t, using a term structure of risk-adjusted discount rates (like Ang and Liu,and Brennan andXia, scribed by most term structure models.
We document that measurement errors do not affect our central results. (JEL G0, G1, E0, E4) We study time-varying risk premia in U.S.
government bonds. We run regressions of one-year excess returns borrow at the one-year rate, buy a long-term .capital structure and rational expected returns vary together over time.
It is difficult to distinguish between these explanations, and the truth may involve both. In this paper, we ask whether time series variation in the maturity of debt issues is tied to predictability in excess long-term bond returns. Relative to the literature on equity.