Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
958891 | Journal of Empirical Finance | 2007 | 28 Pages |
Abstract
This paper analyzes and quantifies ex ante components of bond yields - real rate of returns and risk premiums - from observed prices of nominal and indexed bonds in the United Kingdom from 1983 to 2000. The estimation uses an asset pricing framework based on a habit consumption model together with a joint formulation of consumption growth and inflation. Nominal yields carry a time-varying inflation premium that is significant throughout the period, increasing in the bond's maturity and contributing up to 25 basis points to yearly nominal yields. The analysis allows the extraction of the ex ante real rate from indexed bonds by properly taking into account both the incomplete indexation on these instruments and the inflation premium embedded in the nominal bonds.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Leonardo Madureira,