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Interest Term Premiums and C-CAPM: A Test of a Parsimonious Model

Author

Listed:
  • Hubert de la Bruslerie

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)

  • Jessica Fouilloux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper proposes a consumption-based model that accounts for term premiums of the nominal term structure of interest rates. The driving force behind the model is the looking at the ex ante term premium. Nominal term premiums depend on the volatility processes of real consumption and inflation. When calibrated to US data on interest rates, consumption and inflation, the model accounts for the C-CAPM expectations puzzle. Risk aversion coefficients around 6 are evidenced. The hypothesis of non-constant subjective discount rates is envisaged but successfully validated.

Suggested Citation

  • Hubert de la Bruslerie & Jessica Fouilloux, 2010. "Interest Term Premiums and C-CAPM: A Test of a Parsimonious Model," Working Papers halshs-00536924, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00536924
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00536924
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    Keywords

    C-CAPM; term structure of interest rates; term premium; risk aversion; subjective discount factor;
    All these keywords.

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