Adjusting Futures Forecasts of Federal Reserve Policy: Risk-Premia or Expectational Errors?

Albert Lee Chun, Olfa Maalaoui Chun

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

Our results challenge the traditional way we interpret empirical measures of risk premia, as a signicant part of the predictable component of excess returns is strongly correlated with predictability in survey forecast errors. Using survey forecasts of the federal funds rate to proxy for market expectations, we show that the predictable component of excess returns can not be attributed to risk premia in the fed funds futures market. We argue that the documented biases in futures forecasts of monetary policy, which were previously characterized as risk premia (Piazzesi and Swanson, 2008), are driven primarily by expectational errors.
Original languageEnglish
Publication date2013
Number of pages12
Publication statusPublished - 2013
EventEuropean Economic Association & Econometric Society 2013 Parallel Meetings - Gothenburg, Sweden
Duration: 26 Aug 201330 Aug 2013
http://www.eea-esem.com/eea-esem/2013/

Conference

ConferenceEuropean Economic Association & Econometric Society 2013 Parallel Meetings
CountrySweden
CityGothenburg
Period26/08/201330/08/2013
Internet address

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