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The Quality of Public Information and The Term Structure of Interest Rates

Author

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  • Frederik Lundtofte

    (Swiss Institute of Banking and Finance, University of St-Gallen)

Abstract

This paper analyzes the term structure of interest rates in an exchangeonly Lucas (1978) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We show that there is a premium for noisy external public information in long-term bonds. In contrast to Feldman (1989), where agents learn only through realized outputs, we find that nonstochastic interest rates are not necessary for the expectations hypothesis to hold.

Suggested Citation

  • Frederik Lundtofte, 2006. "The Quality of Public Information and The Term Structure of Interest Rates," Swiss Finance Institute Research Paper Series 06-24, Swiss Finance Institute, revised Sep 2006.
  • Handle: RePEc:chf:rpseri:rp0624
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Januj Juneja, 2015. "An evaluation of alternative methods used in the estimation of Gaussian term structure models," Review of Quantitative Finance and Accounting, Springer, vol. 44(1), pages 1-24, January.
    2. David Feldman & Charles Trzcinka & Russell Winer, 2015. "Pricing under noisy signaling," Review of Quantitative Finance and Accounting, Springer, vol. 45(2), pages 435-454, August.
    3. Wen-Lin Wu & Yin-Feng Gau, 2017. "Home bias in portfolio choices: social learning among partially informed agents," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 527-556, February.

    More about this item

    Keywords

    learning; information quality; incomplete information; term structure of interest rates;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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