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A survey-based estimation of the Swiss franc forward term premium

Author

Listed:
  • Lucas Marc Fuhrer

    (Schweizerische Nationalbank)

  • Basil Guggenheim

    (Schweizerische Nationalbank)

  • Matthias Jüttner

    (Schweizerische Nationalbank)

Abstract

This paper sheds light on Swiss franc LIBOR futures, which are often used to derive interest rate expectations. We show that the differences between LIBOR futures and realized rates (excess returns) are, on average, positive over the last 25 years. Using interest rate surveys, we decompose excess returns into a (forward) term premium and forecast errors. The decomposition reveals that the bulk of excess returns arises from forecast errors, while the term premium is, on average, zero but time varying. We find that the term premium positively correlates with the business cycle, interest rate developments, and in absolute values increases with interest rate uncertainty.

Suggested Citation

  • Lucas Marc Fuhrer & Basil Guggenheim & Matthias Jüttner, 2019. "A survey-based estimation of the Swiss franc forward term premium," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-18, December.
    • Handle: RePEc:spr:sjecst:v:155:y:2019:i:1:d:10.1186_s41937-019-0034-6
    DOI: 10.1186/s41937-019-0034-6
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    More about this item

    Keywords

    Term premium; LIBOR futures; Swiss franc;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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