Risk Premium Information from Treasury Bill Yields

30 Pages Posted: 22 Aug 2011 Last revised: 8 Apr 2016

See all articles by Jaehoon Lee

Jaehoon Lee

University of New South Wales (UNSW); DeepSearch, Inc.

Date Written: March 9, 2016

Abstract

This paper finds that short-maturity Treasury-bill yields have unique information about risk premiums that is not spanned by long-maturity Treasury-bond yields. I estimate two components of risk premiums: one is for long-term and the other is for short-term. The long-term component steepens the slope of yield curves and has forecastability horizon of longer than one year. In contrast, the short-term component affects Treasury-bill yields but almost invisible from Treasury bonds, has forecastability horizon of less than one quarter, and is related to bond liquidity premiums.

Suggested Citation

Lee, Jaehoon, Risk Premium Information from Treasury Bill Yields (March 9, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1914226 or http://dx.doi.org/10.2139/ssrn.1914226

Jaehoon Lee (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

DeepSearch, Inc. ( email )

Seoul
Korea, Republic of (South Korea)

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