Working Paper Series, Department of Economics, Uppsala University
No 2004:12:
Far Out on the Yield Curve
Annika Alexius
Abstract: Data on short investments in Swedish long-term bonds as
the bonds mature contains unusually rich information about the relationship
between duration and the first and second moments of bond returns. We
identify three different channels through which duration affects bond
returns. The liquidity preference hypothesis yields a direct link between
duration and returns, which however disappears once indirect effects
through the variance of returns and the price of risk are taken into
account. The risk premia obtained from a multivariate GARCH-M model
extended to allow the variance to depend on duration are of the same size
as observed excess returns. Finally, duration appears to affect the
relationship between bond returns and the risk free interest rate. One
additional year of duration implies that the beta-coeffcient increases by
0.66.
Keywords: Bond returns; duration; multivariate GARCH; (follow links to similar papers)
JEL-Codes: C12; E43; (follow links to similar papers)
41 pages, June 15, 2004
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
wp2004_12.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Katarina Grönvall ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
