Department of Economics and Business Economics

The volatility of long-term bond returns: Persistent interest shocks and time-varying risk premiums

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The volatility of long-term bond returns : Persistent interest shocks and time-varying risk premiums. / Osterrieder, Daniela; Schotman, Peter C.

In: Review of Economics and Statistics, Vol. 99, No. 5, 01.12.2017, p. 884-895.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

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Osterrieder, Daniela ; Schotman, Peter C. / The volatility of long-term bond returns : Persistent interest shocks and time-varying risk premiums. In: Review of Economics and Statistics. 2017 ; Vol. 99, No. 5. pp. 884-895.

Bibtex

@article{d51cd8dd555445c0b0026bc8bce2e14b,
title = "The volatility of long-term bond returns: Persistent interest shocks and time-varying risk premiums",
abstract = "We develop an almost affine term-structure model with a closedform solution for factor loadings in which the spot rate and the risk price are fractionally integrated processes with different integration orders. This model is used to explain two stylized facts. First, predictability of longterm excess bond returns requires sufficient volatility and persistence in the risk price. Second, the large volatility of long-term bond returns requires persistence in the spot rate. Decomposing long-term bond returns, we find that the expectations component from the level factor is more volatile than returns themselves and that the risk premium correlates negatively with level-factor innovations.",
author = "Daniela Osterrieder and Schotman, {Peter C.}",
year = "2017",
month = dec,
day = "1",
doi = "10.1162/REST_a_00624",
language = "English",
volume = "99",
pages = "884--895",
journal = "The Review of Economics and Statistics",
issn = "0034-6535",
publisher = "MIT Press",
number = "5",

}

RIS

TY - JOUR

T1 - The volatility of long-term bond returns

T2 - Persistent interest shocks and time-varying risk premiums

AU - Osterrieder, Daniela

AU - Schotman, Peter C.

PY - 2017/12/1

Y1 - 2017/12/1

N2 - We develop an almost affine term-structure model with a closedform solution for factor loadings in which the spot rate and the risk price are fractionally integrated processes with different integration orders. This model is used to explain two stylized facts. First, predictability of longterm excess bond returns requires sufficient volatility and persistence in the risk price. Second, the large volatility of long-term bond returns requires persistence in the spot rate. Decomposing long-term bond returns, we find that the expectations component from the level factor is more volatile than returns themselves and that the risk premium correlates negatively with level-factor innovations.

AB - We develop an almost affine term-structure model with a closedform solution for factor loadings in which the spot rate and the risk price are fractionally integrated processes with different integration orders. This model is used to explain two stylized facts. First, predictability of longterm excess bond returns requires sufficient volatility and persistence in the risk price. Second, the large volatility of long-term bond returns requires persistence in the spot rate. Decomposing long-term bond returns, we find that the expectations component from the level factor is more volatile than returns themselves and that the risk premium correlates negatively with level-factor innovations.

U2 - 10.1162/REST_a_00624

DO - 10.1162/REST_a_00624

M3 - Journal article

AN - SCOPUS:85036518374

VL - 99

SP - 884

EP - 895

JO - The Review of Economics and Statistics

JF - The Review of Economics and Statistics

SN - 0034-6535

IS - 5

ER -