The Banking View of Bond Risk Premia

79 Pages Posted: 2 Nov 2018 Last revised: 7 Oct 2019

See all articles by Valentin Haddad

Valentin Haddad

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

David Alexandre Sraer

University of California, Berkeley; Princeton University

Multiple version iconThere are 3 versions of this paper

Date Written: October 10, 2018

Abstract

Banks' balance-sheet exposure to fluctuations in interest rates strongly forecasts excess Treasury bond returns. This result is consistent with optimal risk management, a banking counterpart to the household Euler equation. In equilibrium, the bond risk premium compensates banks for bearing fluctuations in interest rates. When banks' exposure to interest rate risk increases, the price of this risk simultaneously rises. We present a collection of empirical observations supporting this view, but also discuss several challenges to this interpretation.

Suggested Citation

Haddad, Valentin and Sraer, David Alexandre, The Banking View of Bond Risk Premia (October 10, 2018). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3264386 or http://dx.doi.org/10.2139/ssrn.3264386

Valentin Haddad (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Alexandre Sraer

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
249
Abstract Views
1,379
rank
144,765
PlumX Metrics