Term Structure Of Interest Rates And Expected Consumption Volatility
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Author | : Hubert de La Bruslerie |
Publisher | : |
Total Pages | : 48 |
Release | : 2015 |
Genre | : |
ISBN | : |
We test two forms of consumption-based asset pricing model on American bond market data. The first is the standard C-CAPM, the other one is derived from Abel (1999) who refers to an external habit. The term premium embedded in the term structure of interest rate is linked with the conditional variance of consumption growth and is variable through time. Our empirical test confirms that hypothesis. When modeling consumption using an AR-GARCH process, the ex ante out-of-sample value of the conditional variance is shown superior to other conditional measures. Considering both univariate and multivariate frameworks, variable term premiums are positively linked to variable consumption growth expectations. It supports the expectations hypothesis of term structure and the standard consumption-based asset pricing model. However, a significant constant appears in the empirical test which is not present in the standard consumption models, but can be related to the subjective discount factor of the representative agent. It leads to question the commonly assumed hypothesis of a constant subjective time preference and suggests a decreasing term structure of the agent psychological price of time.
Author | : Jessica A. Wachter |
Publisher | : |
Total Pages | : 52 |
Release | : 2011 |
Genre | : |
ISBN | : |
This paper proposes a consumption-based model that can account for many features of the nominal term structure of interest rates. The driving force behind the model is a time-varying price of risk generated by external habit. Nominal bonds depend on past consumption growth through habit and on expected inflation. When calibrated data on consumption, inflation, and the average level of bond yields, the model produces realistic volatility of bond yields and can explain key aspects of the expectations puzzle documented by Campbell and Shiller (1991) and Fama and Bliss (1987). When Actual consumption and inflation data are fed into the model, the model is shown to account for many of the short and long-run fluctuations in the short-term interest rate and the yield spread. At the same time, the model captures the high equity premium and excess stock market volatility.
Author | : Rajna Gibson |
Publisher | : Now Publishers Inc |
Total Pages | : 171 |
Release | : 2010 |
Genre | : Business & Economics |
ISBN | : 1601983727 |
Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
Author | : Taeyoung Doh |
Publisher | : |
Total Pages | : 44 |
Release | : 2013 |
Genre | : |
ISBN | : |
Using Bayesian methods, this paper estimates a model in which persistent fluctuations in expected consumption growth, expected inflation, and their timevarying volatility determine asset price variation. The analysis of the U.S. nominal term structure data from 1953 to 2006 shows that i) agents dislike high uncertainty and demand compensation for volatility risks, ii) the time variation of the term premium is driven by the compensation for fluctuating inflation volatility, and iii) estimates of risk factors are broadly consistent with survey data evidence.
Author | : Shu Wu |
Publisher | : |
Total Pages | : 208 |
Release | : 2000 |
Genre | : |
ISBN | : |
Author | : María Isabel Martínez Serna |
Publisher | : |
Total Pages | : 32 |
Release | : 2005 |
Genre | : |
ISBN | : |
Many papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation for this economic link is based on monetary policy. However, empirical evidence (Estrella and Hardouvelis, 1991; Plosser and Rouwenhorst, 1994; Estrella and Mishkin, 1997; Moersch, 1996a,b; Kozicki, 1997; Dotsey, 1998; Ivanova et al., 2000) has shown that monetary policy does not appear to be the only source of the predictive power of the term spread. Therefore, the spread reflects other economic conditions beyond actions taken by monetary authorities. According to Harvey (1988), the forecasting ability of the term spread on economic growth is due to the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. Harvey (1988) uses the Consumption-Based Asset Pricing Model (CCAPM) to derive a forecasting equation that relates the slope of the term structure of interest rates to expected consumption growth. Harvey's model has been tested in several countries using ex post consumption or output growth as proxies of expected consumption growth. This paper complements and extends the evidence of Harvey's model by testing it for the case of Spain and by using a measure of expected consumption growth rather than proxies for the investors' expectations. The variables used are the Consumer Confidence Indicator and the Economic Sentiment Indicator (elaborated by the European Commission) that directly stand for the expectations of economic agents about the future economic situation in the next twelve months.
Author | : R. S. Masera |
Publisher | : |
Total Pages | : 232 |
Release | : 1972 |
Genre | : Business & Economics |
ISBN | : |
Author | : Clark Leavitt |
Publisher | : |
Total Pages | : 418 |
Release | : 1987 |
Genre | : Accounting fraud |
ISBN | : |
Author | : Diana Ruthenberg |
Publisher | : GRIN Verlag |
Total Pages | : 13 |
Release | : 2006-04-14 |
Genre | : Business & Economics |
ISBN | : 3638491285 |
Essay from the year 2004 in the subject Business economics - Investment and Finance, grade: 1.8, University of Plymouth (Business School), language: English, abstract: Firstly, this report will depict briefly what a bond is in general and how to evaluate its advantages and inconveniences for potential investors. Then it aims at to explain when and why the yield on long-term bonds often exceeds the yield on short-term bonds. The explanation will mainly be based on the three primary theories: the expectations hypothesis, the liquidity premium / preferred habitat theories and the market segmentation theory.
Author | : Burton Gordon Malkiel |
Publisher | : Princeton University Press |
Total Pages | : 294 |
Release | : 2015-12-08 |
Genre | : Business & Economics |
ISBN | : 1400879787 |
Can expectations alone explain the yield differentials among bonds of different maturities? To what extend do attitudes toward risk and transactions costs influence the behavior of bond investors? Is it possible for the Federal Reserve to "twist" the interest-rate structure in accordance with its policy objectives? These are among the questions treated. Originally published in 1966. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.