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Risk Premia in the Term Structure of Swaps in Pesetas

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Abstract

Some characteristics of the term structure in interest rate swap (IRS) markets are influenced by the own idiosyncrasy of this financial instrument, which could explain the rejection of the Expectations Hypothesis, we present evidence supporting the existence of significant, time-varying risk premia. We then focus on characterizing some propreties of realized, ex-pst term-premia, and provide explanatory variables for them. We pay particular attention to the extent to which the levels of markets risk, default risk and liquidity risk explain the time evolution of risk premia at different maturities.

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File URL: http://eprints.ucm.es/7678/1/0219.pdf
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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0219.

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Length: pages 22
Date of creation: 2002
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Handle: RePEc:ucm:doicae:0219

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Keywords: Term structure; Interest rate swaps; Expectations theory; Forwad rate; Risk premium.;

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  1. Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, American Finance Association, vol. 31(2), pages 471-83, May.
  2. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  3. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(1), pages 116-31, February.
  4. Reuben A. Kessel, 1965. "The Cyclical Behavior of the Term Structure of Interest Rates," NBER Books, National Bureau of Economic Research, Inc, number kess65-1.
  5. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 391-407, March.
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Cited by:
  1. Emma Berenguer-Carceles & Ricardo Gimeno & Juan M. Nave, 2012. "Estimation of the Term Structure of Interest Rates: Methodology and Applications," Working Papers, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration) 12.06, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).

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