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A survey-based estimation of the Swiss franc forward term premium

Lucas Fuhrer, Basil Guggenheim and Matthias Jüttner ()
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Matthias Jüttner: Schweizerische Nationalbank

Swiss Journal of Economics and Statistics, 2019, vol. 155, issue 1, 1-18

Abstract: Abstract This paper sheds light on Swiss franc LIBOR futures, which are often used to derive interest rate expectations. We show that the differences between LIBOR futures and realized rates (excess returns) are, on average, positive over the last 25 years. Using interest rate surveys, we decompose excess returns into a (forward) term premium and forecast errors. The decomposition reveals that the bulk of excess returns arises from forecast errors, while the term premium is, on average, zero but time varying. We find that the term premium positively correlates with the business cycle, interest rate developments, and in absolute values increases with interest rate uncertainty.

Keywords: Term premium; LIBOR futures; Swiss franc (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Date: 2019
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Working Paper: What do Swiss franc Libor futures really tell us? (2018) Downloads
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DOI: 10.1186/s41937-019-0034-6

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