Bond risk premia and restrictions on risk prices

Constantino Hevia and Martin Sola

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: Researchers who estimate affine term structure models often impose overidentifying restrictions (restrictions on parameters beyond those necessary for identification) for a variety of reasons. While some of those restrictions seem to have minor effects on the extracted factors and some measures of risk premia, such as the forward risk premium, they may have a large impact on other measures of risk premia that is often ignored. In this paper we analyze how apparently innocuous overidentifying restrictions imposed on affine term structure models can lead to large differences in several measures of risk premiums.

Keywords: Bond risk premia; affine term structure models; risk prices (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018-10
New Economics Papers: this item is included in nep-fmk, nep-mac, nep-rmg and nep-upt
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Bond Risk Premia and Restrictions on Risk Prices (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2018_03

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