Abstract

http://ssrn.com/abstract=199448
 
 

Citations (11)



 
 

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Short and Long Horizon Term and Inflation Risk Premia in the US Term Structure: Evidence from an Integrated Model for Nominal and Real Bond Prices Under Regime Shifts


Francis Yared


Lehman Brothers, New York

Pietro Veronesi


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

December 1999

Center for Research in Security Prices (CRSP) Working Paper No. 508

Abstract:     
We provide an integrated utility-based model for nominal and index-linked bonds for the case where the CPI and real consumption follow a joint lognormal - regime shift model. Working both in continuous and in discrete time, we discuss a systematic bias in the computation of term and inflation risk premia. We fit the model to the time series of fundamentals and short and long yields to find (i) a low coefficient of risk aversion, (ii) term premia that switch sign over time at both the short and long horizon, (iii) always positive inflation risk premia, although very low in recent times, (iv) quite variable real rates both at the short horizon and at the long horizon.

Number of Pages in PDF File: 68

JEL Classification: E43, G12

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Date posted: February 3, 2000  

Suggested Citation

Yared, Francis and Veronesi, Pietro, Short and Long Horizon Term and Inflation Risk Premia in the US Term Structure: Evidence from an Integrated Model for Nominal and Real Bond Prices Under Regime Shifts (December 1999). Center for Research in Security Prices (CRSP) Working Paper No. 508. Available at SSRN: http://ssrn.com/abstract=199448 or http://dx.doi.org/10.2139/ssrn.199448

Contact Information

Francis Bechara Yared
Lehman Brothers, New York ( email )
Fixed Income Derivative Research
New York, NY 10285
United States
Pietro Veronesi (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-6348 (Phone)
773-702-0458 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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