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| Author: | Dai, Q. Singleton, K.J. |
| Title: | Expectation puzzles, time-varying risk premia, and affine models of the term structure |
| Journal: | Journal of Financial Economics
2002 : MAR, VOL. 63:3, p. 415-441 |
| Index terms: | Stock markets Prices Risk analysis Models |
| Freeterms: | Predictability |
| Language: | eng |
| Abstract: | Linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional "expectations theory". This paper shows that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we match all the key empirical findings reported by Fama and Bliss (1987) American Economic Review 77:4, p. 680-692) and Campbell and Shiller (1991) Review of Economic Studies 58, p. 495-514), among others, within large subclasses of affine and quadratic-Gaussian term structure models. Additionally, we show that certain "risk-premium adjusted" projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models. |
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