Risk-Free Interest Rates

57 Pages Posted: 20 Aug 2019

See all articles by William Diamond

William Diamond

University of Pennsylvania - Finance Department

Marco Grotteria

London Business School

Jules H. van Binsbergen

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

Multiple version iconThere are 3 versions of this paper

Date Written: July 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: Convenience Yield, Demand for Safe Assets, monetary policy, Quantitative easing

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

Suggested Citation

Diamond, William and Grotteria, Marco and van Binsbergen, Jules H., Risk-Free Interest Rates (July 2019). CEPR Discussion Paper No. DP13899. Available at SSRN: https://ssrn.com/abstract=3439452

William Diamond (Contact Author)

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/

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

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