Risk Free Interest Rates

54 Pages Posted: 22 Sep 2018 Last revised: 12 Aug 2020

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

William Diamond

University of Pennsylvania - Finance Department

Marco Grotteria

London Business School

Multiple version iconThere are 3 versions of this paper

Date Written: July 24, 2019

Abstract

We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain a term structure of convenience yields with maturities up to 2.5 years at a minutely frequency. The convenience yield on treasuries equals about 40 basis points, is larger below 3 months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduce convenience yields, particularly during the crisis. We further study convenience-yield-free CIP deviations, and we show significant bond return predictability related to convenience yields.

Keywords: Demand for Safe Assets, Convenience Yield, Quantitative Easing, Monetary Policy

JEL Classification: E41, E43, E44, G12, G21

Suggested Citation

van Binsbergen, Jules H. and Diamond, William and Grotteria, Marco, Risk Free Interest Rates (July 24, 2019). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3242836 or http://dx.doi.org/10.2139/ssrn.3242836

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

William Diamond

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Marco Grotteria

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://https://sites.google.com/site/marcogrotteria/

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