Citations (7)



Speculation, Hedging, and Interest Rates

Andrea Buraschi

The University of Chicago; Imperial College Business School; Centre for Economic Policy Research (CEPR)

Paul Whelan

Copenhagen Business School

January 1, 2016

We study the properties of bonds in an economy with risk tolerant agents who are rationally induced to trade because they believe in different models for the dynamics of the economy. We show analytically that low risk aversion coupled with differences in beliefs can help rationalise several features of Treasury bond markets that the single agent paradigm finds difficult to reconcile. Empirically, we test predictions from the model using a large dataset on beliefs about fundamentals and find that: (i) shocks to disagreement lower short term interest rates; (ii) raise the slope of the yield curve; and (iii) predict expected excess bond returns.

Number of Pages in PDF File: 56

Keywords: Fixed income, Bond Risk Premia, Heterogeneous Agents, Speculation

JEL Classification: D9, E3, E4, G12

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Date posted: July 17, 2011 ; Last revised: February 8, 2016

Suggested Citation

Buraschi, Andrea and Whelan, Paul, Speculation, Hedging, and Interest Rates (January 1, 2016). Available at SSRN: https://ssrn.com/abstract=1887644 or http://dx.doi.org/10.2139/ssrn.1887644

Contact Information

Andrea Buraschi
The University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
7738347123 (Phone)
HOME PAGE: http://www.andreaburaschi.com/

Chicago Booth School of Business Logo

Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
HOME PAGE: http://www.andreaburaschi.com/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Paul Whelan (Contact Author)
Copenhagen Business School ( email )
Copenhagen Business School
Finance Department
Copenhagen, DC 1854
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