Information in the Term Structure of Yield Curve Volatility
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 |
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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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