Interest Rate Skewness and Biased Beliefs

Michael Bauer and Mikhail Chernov

No 9150, CESifo Working Paper Series from CESifo

Abstract: The conditional skewness of Treasury yields is an important indicator of the risks to the macroeconomic outlook. Positive skewness signals upside risk to interest rates during periods of accommodative monetary policy and an upward-sloping yield curve, and vice versa. Skewness has substantial predictive power for future bond excess returns, high-frequency interest rate changes around FOMC announcements, and survey forecast errors for interest rates. The estimated expectational errors, or biases in beliefs, are quantitatively important for statistical bond risk premia. These findings are consistent with a heterogeneous-beliefs model where one of the agents is wrong about consumption growth.

Keywords: bond risk premia; slope; asymmetry; skewness; biased beliefs; monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G12 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Interest Rate Skewness and Biased Beliefs (2024)
Working Paper: Interest Rate Skewness and Biased Beliefs (2021)
Working Paper: Interest Rate Skewness and Biased Beliefs (2021)
Working Paper: Interest rate skewness and biased beliefs (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9150

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