The Volatility of Long-term Bond Returns: Persistent Interest Shocks and Time-varying Risk Premiums

Abstract

We develop a model that can match two stylized facts of the term-structure. The first stylized fact is the predictability of excess returns on long-term bonds. Modeling this requires sufficient volatility and persistence in the price of risk. The second stylized fact is that long-term yields are dominated by a level factor, which requires persistence in the… (More)

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Cite this paper

@inproceedings{Osterrieder2012TheVO, title={The Volatility of Long-term Bond Returns: Persistent Interest Shocks and Time-varying Risk Premiums}, author={Daniela Osterrieder and Peter C. Schotman}, year={2012} }