The bond market puzzle is one of the major puzzles in the financial markets. It’s the empirical evidence that shows the generating of bond yields does not obey the expectations theory. One possible explanation for the deviation to the expectations theory is the existence of time-varying risk premia. This paper shows that this puzzle can be successfully addressed by a segmented asset market model, which can generate time-varying risk premia response to the fluctuation of inflation. It also shows that the deviation to the expectations theory is proportional to the level of the risk.
PhD Lunch Seminars Rotterdam
- Speaker(s)
- Xuedong Wang
- Date
- 2013-01-24
- Location
- Rotterdam