Skip navigation
Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27411
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

Files in This Item:
File Description SizeFormat 
S-AM-00-01.pdf489.42 kBAdobe PDFView/Open


Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.