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Author: Steven Sabol Publisher: ISBN: Category : Languages : en Pages : 10
Book Description
This paper blends the successful decomposition of nominal bond returns by Pflueger and Viceira (2011), with the forecasting factors of Sabol (2015) to conjure up a complete model of risk-free bonds.
Author: Steven Sabol Publisher: ISBN: Category : Languages : en Pages : 10
Book Description
This paper blends the successful decomposition of nominal bond returns by Pflueger and Viceira (2011), with the forecasting factors of Sabol (2015) to conjure up a complete model of risk-free bonds.
Author: Steven Sabol Publisher: ISBN: Category : Languages : en Pages : 35
Book Description
Expected returns are what we expect to earn over the next year if we choose to invest today. The expected return is not plucked out of thin air, but is modeled by our hero: The Econometrician. In scholastic seminars, he explains how to interpret expected bond returns, and in client emails, the intuition behind why he expects his models to work for the foreseeable future. He takes the time to review how to decompose expected returns into a real, inflation, liquidity and monetary policy risk premium. He is the hero because he is able to effectively communicate his ideas and expand his framework when new predictors emerge in the literature. Two such predictors include the banks' income gap, put forth by Haddad and Srear (2015), and a related measure, mortgage duration as championed by Hanson (2014). He also finds ways to work in older ideas by establishing simple strategies to look at how other variables related to bond yields influence changes in the shape of the curve. The Econometrician embraces clarity and would argue that, despite its growing popularity among academetricians, the affine term structure model provides absolutely no gain in understanding the source of expected returns for common men.
Author: Robert Brooks Publisher: ISBN: Category : Languages : en Pages :
Book Description
The problem of decomposing bond portfolio holding period returns is addressed in this paper. Bond holding period returns are decomposed into four main components, the non-random horizon component, the spread component, the base-rate component, and an interaction component. The horizon component captures the return attributable to the mere passage of time over the holding period horizon based solely on the selected base spot rate curve. The spread component captures the return attributable to any change in the spread over the fitted base spot rate curve. The base-rate component captures movement in the fitted base spot rate curve using the LSC model introduced in this paper. The base-rate component of returns can be further decomposed into three components attributable to modified duration, convexity, and cross-convexity using the Taylor series approximation. Each of these three base-rate components can be further decomposed into three subcomponents tied to movement in level, movement in slope, and movements in a set of curvature components. We illustrate our results with several numerical examples, generic as well as actual U.S. Treasury data.
Author: Frank J. Fabozzi Publisher: John Wiley & Sons ISBN: 9781883249274 Category : Business & Economics Languages : en Pages : 572
Book Description
A contributed handbook on the complexities of portfolio management that includes the most up-to-date findings from leading practitioners in the fixed income securities market.
Author: Olivier Blanchard Publisher: MIT Press ISBN: 9780262521741 Category : Business & Economics Languages : en Pages : 312
Book Description
This is the seventh in a series of annuals from the National Bureau of Economic Research that are designed to stimulate research on problems in applied economics, to bring frontier theoretical developments to a wider audience, and to accelerate the interaction between analytical and empirical research in macroeconomics. Contents What Shall We Do Today? Goals and Signposts in the Operation of Monetary Policy, Ben S. Bernanke and Frederic S. Mishkin - A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore, Alwyn Young - International Trade and the Wage Structure, Steven J. Davis - Imperfect Information and Macroeconomic Analysis, Joseph E. Stiglitz and Bruce Greenwald - Asset Pricing Lessons for Macroeconomics, Lars P. Hansen and John H. Cochrane - Postmortem on the Debt Crisis, Daniel Cohen
Author: Fan Yu Publisher: ISBN: Category : Languages : en Pages : 27
Book Description
The existing literature on credit risk focuses on fitting bond prices and explaining yield spreads, while largely skirting the issue of expected return. The unique feature of credit risk, however, implies that the expected return on defaultable bonds is not synonymous with the (pre-default) price process as in the case of default-free bonds. In this paper, the expected return on defaultable bonds is examined within the framework of intensity-based credit risk models. It is shown that a defaultable bond's instantaneous expected return can be decomposed into three parts: a default-free component, a compensation for variations in default risk, and a compensation for investors' risk-aversion towards the default event. The methodology for estimating these components as well as the practical difficulties one might encounter in this estimation are discussed. Easily extended to include a non-default component, this decomposition can enrich our understanding of many empirical observations concerning credit risk.
Author: Richard K. Crump Publisher: ISBN: Category : Languages : en Pages : 88
Book Description
Bond yields can be decomposed into expected short rates and term premiums. We directly measure the former using all available U.S. professional forecasts and obtain the latter as the difference between bond yields and survey-based expected short rates. While the behavior of nominal and real short rate expectations is consistent with standard macroeconomic theory, term premiums account for the bulk of the cross-sectional and time series variation in yields. They also largely explain the yield curve's reaction to a host of structural economic shocks. This dramatic failure of the expectations hypothesis highlights the importance of term premiums for macro-financial transmission.
Author: Anna Cieslak Publisher: ISBN: Category : Languages : en Pages : 60
Book Description
We study risk premium in US Treasury bonds. We decompose Treasury yields into inflation expectations and maturity-specific interest rate cycles, which we define as variation in yields orthogonal to expected inflation. The short-maturity cycle captures the real short-rate dynamics. Jointly with expected inflation, it comprises the expectations hypothesis (EH) term in the yield curve. Controlling for the EH term, we extract a measure of risk premium variation from yields. The risk premium factor forecasts excess bond returns in and out of sample and subsumes the common bond return predictor obtained as a linear combination of forward rates.
Author: Steven Sabol
Author: Steven Sabol
Author: Steven Sabol
Author: Francis J. Breedon
Author: Robert Brooks
Author: Frank J. Fabozzi
Author: John H. Cochrane
Author: Olivier Blanchard
Author: Fan Yu
Author: Richard K. Crump
Author: Anna Cieslak