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Working Paper
Specifying a consistent joint maximum-likelihood (JMLE) approach to testing bond models
Ramamurtie, Buddhavarapu Sailesh; Ulman, Scott (1996)
In this paper we extend the results derived in our earlier work to develop a methodology to employ the maximum-likelihood estimation technique for the pricing of interest rate instruments. In order to price bonds and their derivative assets, researchers must identify a preference parameter in addition to the dynamics for the interest rate process. There are two approaches to obtaining estimators for both preference and dynamics parameters: (1) a two-stage approach and (2) a single-stage joint maximum-likelihood (JMLE) approach. The first approach, while tractable, suffers from serious ...
FRB Atlanta Working Paper , Paper 96-15

Journal Article
Domestic gloom and foreign optimism?
Keran, Michael W. (1981)
FRBSF Economic Letter

Journal Article
Movements in the term structure of interest rates
Bliss, Robert R. (1997-10-04)
Bond prices tend to move together. Stocks tend to go their own way. This distinction requires completely different approaches to managing risks for these securities. For equities the emphasis is on reducing idiosyncratic risk through portfolio diversification. For interest rate-sensitive securities it is on precisely balancing a portfolio to achieve the desired exposure to systematic risk factors. ; Hedging to reduce or eliminate the common factors influencing an interest rate-sensitive portfolio's value requires a model of interest rate behavior. This article reviews and extends previous ...
Economic Review , Volume 82 , Issue Q 4 , Pages 16-33

Report
Two factors along the yield curve
Gong, Frank F.; Remolona, Eli M. (1996)
We estimate two-factor equilibrium models on different parts of the yield curve. In this exploration of the term structure of interest rates, we use two-factor affine yield models as our diagnostic tool. The exercise provides insights on how to reconcile the time-series dynamics of interest rates with the cross-sectional shapes of the term structure and on how movements in the yield curve are related to macroeconomic fundamentals. The evidence favors models in which one factor reverts over time to a time-varying mean. One such model seems adequate to explain three-month to two-year bond ...
Research Paper , Paper 9613

Working Paper
Stare down the barrel and center the crosshairs: Targeting the ex ante equity premium
Kramer, Lisa; Donaldson, Glen; Kamstra, Mark (2003)
The equity premium of interest in theoretical models is the extra return investors anticipate when purchasing risky stock instead of risk-free debt. Unfortunately, we do not observe this ex ante premium in the data; we only observe the returns that investors actually receive ex post, after they purchase the stock and hold it over some period of time during which random economic shocks affect prices. Over the past century U.S. stocks have returned roughly 6 percent more than risk-free debt, which is higher than warranted by standard economic theory; hence the "equity premium puzzle." In this ...
FRB Atlanta Working Paper , Paper 2003-4

Working Paper
Informed and strategic order flow in the bond markets
Pasquariello, Paolo; Vega, Clara (2006)
We study the role played by private and public information in the process of price formation in the U.S. Treasury bond market. To guide our analysis, we develop a parsimonious model of speculative trading in the presence of two realistic market frictions -- information heterogeneity and imperfect competition among informed traders -- and a public signal. We test its equilibrium implications by analyzing the response of two-year, five-year, and ten-year U.S. bond yields to order flow and real-time U.S. macroeconomic news. We find strong evidence of informational effects in the U.S. Treasury ...
International Finance Discussion Papers , Paper 874

Journal Article
The stock market: too high? too low? just right
Clement, Douglas (2001-06)
The Region , Volume 15 , Issue Jun , Pages 8-10

Journal Article
How important is the inflation risk premium?
Shen, Pu (1998-10)
Investors and market analysts generally believe that the yield on a nominal bond includes an inflation risk premium to compensate investors for bearing the inflation risk associated with the bond. Knowing how much of a risk premium investors require on nominal bonds can be valuable information for policymakers. For government Treasuries, the size of the risk premium represents the potential interest savings for governments when nominal securities are replaced with real, or inflation-indexed, securities. And, because the inflation risk premium reflects perceived inflation uncertainty, changes ...
Economic Review , Volume 83 , Issue Q IV , Pages 35-47

Working Paper
Bond risk premia and realized jump volatility
Wright, Jonathan H.; Zhou, Hao (2007)
We find that adding a measure of market jump volatility risk to a regression of excess bond returns on the term structure of forward rates nearly doubles the R square of the regression. Our market jump volatility measure is based on the realized jumps identified from high-frequency stock market returns using the bi-power variation technique. The significant enhancement of bond return predictability is robust to different forecasting horizons, to using non-overlapping returns and to the choice of different window sizes in computing the jump volatility. This market jump volatility factor also ...
Finance and Economics Discussion Series , Paper 2007-22

Corporate Bond Spreads and the Pandemic III: Variance across Sectors and Firms
Ebsim, Mahdi; Kozlowski, Julian; Faria-e-Castro, Miguel (2020-05-11)
Corporate bond spreads widened when COVID-19 initially began spreading, then spreads stabilized. How have spreads fared across individual sectors and issuances from the same firm?
On the Economy

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