Abstract
We study the properties of bonds in an economy with risk tolerant agents who arerationally induced to trade because they believe in different models for the dynamicsof the economy. We show analytically that low risk aversion coupled with differencesin beliefs can help rationalise several features of Treasury bond markets that the singleagent paradigm finds difficult to reconcile. Empirically, we test predictions from themodel using a large dataset on beliefs about fundamentals and find that: (i) shocksto disagreement lower short term interest rates; (ii) raise the slope of the yield curve;and (iii) predict expected excess bond returns.
Original language | English |
---|---|
Publication date | 2016 |
Number of pages | 58 |
Publication status | Published - 2016 |
Event | The 43rd European Finance Association Annual Meeting (EFA 2016) - BI Norwegian Business School, Oslo, Norway Duration: 17 Aug 2016 → 20 Aug 2016 Conference number: 43 http://www.efa2016.org/ |
Conference
Conference | The 43rd European Finance Association Annual Meeting (EFA 2016) |
---|---|
Number | 43 |
Location | BI Norwegian Business School |
Country/Territory | Norway |
City | Oslo |
Period | 17/08/2016 → 20/08/2016 |
Internet address |
Keywords
- Fixed income
- Bond Risk Premia
- Heterogeneous Agents
- Speculation