Ex Ante Bond Returns and the Yield Curve

33 Pages Posted: 7 Nov 2008

See all articles by Boudoukh Jacob

Boudoukh Jacob

affiliation not provided to SSRN

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Tom Smith

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Robert Whitelaw

New York University; National Bureau of Economic Research (NBER)

Date Written: March 1996

Abstract

We provide a test of the liquidity preference hypothesis (i.e., the monotonicity of ex ante term premiums), conditioning on the shape of the yield curve. The approach we use is general, and does not require a structural model for conditional expected returns. Using nonparametric estimates, the evidence supports previous conclusions in the literature regarding time-varying negative term premiums. For example, in periods in which the term structure is downward sloping, we find that the premiums can be significantly negative and are often monotonically decreasing in maturity. Interestingly, in these periods the volatility of the term premium is still increasing in maturity, indicating that bond return volatility is not a priced risk.

Suggested Citation

Jacob, Boudoukh and Richardson, Matthew P. and Smith, Tom M. and Whitelaw, Robert F., Ex Ante Bond Returns and the Yield Curve (March 1996). NYU Working Paper No. FIN-96-017. Available at SSRN: https://ssrn.com/abstract=1297119

Boudoukh Jacob (Contact Author)

affiliation not provided to SSRN

No Address Available

Matthew P. Richardson

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Tom M. Smith

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert F. Whitelaw

New York University ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0338 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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