Cieslak, A. and Povala, Pavol (2016) Information in the Term Structure of Yield Curve Volatility. The Journal of Finance 71 (3), pp. 1393-1436. ISSN 0022-1082.
Abstract
Using a novel no-arbitrage model and extensive second-moment data, we decompose conditional volatility of U.S. Treasury yields into volatilities of short-rate expectations and term premia. Short-rate expectations become more volatile than premia before recessions and during asset market distress. Correlation between shocks to premia and shocks to short-rate expectations is close to zero on average and varies with the monetary policy stance. While Treasuries are nearly unexposed to variance shocks, investors pay a premium for hedging variance risk with derivatives. We illustrate the dynamics of the yield volatility components during and after the financial crisis.
Metadata
| Item Type: | Article |
|---|---|
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Administrator |
| Date Deposited: | 15 Jun 2016 12:44 |
| Last Modified: | 02 Aug 2023 17:24 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/15560 |
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