Risk Premium Information from Treasury Bill Yields
University of New South Wales (UNSW)
March 9, 2016
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
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.
Number of Pages in PDF File: 30
Date posted: August 22, 2011 ; Last revised: April 8, 2016