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Learning Through the Yield Curve

Author

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  • Ortiz, Marco

    (Banco Central de Reserva del Perú)

Abstract

This paper presents a model in which investors form their expectations in an adaptive way to price bonds, in the spirit of Adam, Marcet and Nicolini (2011). We follow different assumptions regarding the learning process followed by agents. In the case of finite maturity bonds, the knowledge of the pricing of the first maturity will act as an “anchor", limiting the price volatility of bonds with short maturities. As the maturity increases, the price volatility converges to that of the consol bond. Our results suggests this learning mechanism can help the model capture some of the observed empirical dynamics of yield curve.

Suggested Citation

  • Ortiz, Marco, 2013. "Learning Through the Yield Curve," Working Papers 2013-018, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2013-018
    as

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    References listed on IDEAS

    as
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    2. Klaus Adam & Albert Marcet & Juan Pablo Nicolini, 2016. "Stock Market Volatility and Learning," Journal of Finance, American Finance Association, vol. 71(1), pages 33-82, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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