International Interest-Rate Risk Premia in Affine Term Structure Models

Felix Geiger

No 316/2009, Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim from Department of Economics, University of Hohenheim, Germany

Abstract: I estimate a Gaussian two-factor affine term structure model of bond yields for three countries, the United States, the United Kingdom and Germany. I find a considerable time-varying component of excess returns in the data. They are positively correlated with the slope of the term structure and negatively with the short-term policy rate. In addition, the panel clearly indicates to co-movements in the same directions on an international level. When testing the estimated model for the expectations puzzle of the the term structure, at least at one end of the yield curve, this puzzle can be resolved when applying risk-adjusted yield changes.

Keywords: Term Structure of Interest Rates; Term Premia; Kalman Filter; Maximum Likelihood (search for similar items in EconPapers)
JEL-codes: E43 G12 G15 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-07
New Economics Papers: this item is included in nep-mon
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