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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number
2004:12.
Length: 41 pages Date of creation: 15 Jun 2004 Date of revision: Handle: RePEc:hhs:uunewp:2004_012
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden Phone: + 46 18 471 25 00 Fax: + 46 18 471 14 78 Email: Web page: http://www.nek.uu.se/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Katarina Grönvall).
Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)