Risk premia and term premia in general equilibrium

Article Abstract:

Risk premia and term premia were examined in a general equilibrium model with `catching up with the Joneses' preferences and a novel formulation of leverage. Closed-form solutions for moments of asset returns were derived to show how the equity premium in a general equilibrium can be decomposed into term premia and risk premia. The asset pricing model takes into account the unconditional means and variances of the rates of return on the riskless asset as well as on levered equity.

Econometrics & Model Building, Models, Risk (Economics), Securities, Econometrics, Return on investment, Leverage (Finance), Leverage, Assets (Accounting), Equilibrium (Economics), Rate of return, Business models

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Time-varying term premia on U.S. treasury bills and bonds

Article Abstract:

An analysis of ex ante term premia on US treasury bills and bonds is presented. The analysis applies instrumental variables estimation to evaluate changes on maturities across two months to twenty years. It is shown that a sample period from Apr 1959 to Dec 1989 reveals a positive relation between ex ante term premia and ex ante variablitiy in the nominal one-month risk-free interest rate. In addition, succeeding periods also generate similar variations.

Treasury securities

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Endogenous term premia and anomalies in the term structure of interest rates: explaining the predictability smile

Article Abstract:

The Cox-Ingersoll-Ross and Chen-Scott models of term structure are examined in an effort to explain how yields on short-term and long-term bonds relate. The "predictability smile" in which spreads between the long- and short-term interests rates seem to forecast changes for the short rates is also examined.

United States, Analysis, Influence, Interest rates, United States. Federal Reserve Board, Bonds, Bonds (Securities), Credit market, Credit markets

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