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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27411
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| Title: | Expectation Puzzles, Time-varying Risk Premia, and Dynamic Models of the
Term Structure |
| Authors: | Dai, Qiang
Singleton, Kenneth |
| Issue Date: | 18-Sep-2000 |
| Series/Report no.: | S-AM-00-01 |
| Abstract: | Though linear projections of returns on the slope of the yield curve
have contradicted the implications of the traditional "expectations
theory," we show that these findings are not puzzling relative to a
large class of richer dynamic terms structure models. Specifically, we
are able to match all of the key empirical findings reported by Fama and
Bliss and Campbell and Shiller, among others, within large subclasses of
affine and quadractic-Gaussian term structure models. Key to this
matching are parameterizations of the market prices of risk that let us
separately "control" the shape of the mean yield curve and the
correlation structure of excess returns with the slope of the yield
curve. The risk premiums have a simple form consistent with Fama's
findings on the predictability of forward rates, and are shown to also
be consistent with interest rate, feedback rules used by a monetary
authority in setting monetary policy. |
| URI: | http://hdl.handle.net/2451/27411 |
| Appears in Collections: | Asset Management
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