Interest Rate Skewness and Biased Beliefs

(joint with Mikhail Chernov)
Speaker

Michael Bauer

Date
Thursday 2 Dec 2021, 12:00 - 13:00
Type
Seminar
Spoken Language
English
Room
Online
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Conditional yield skewness is an important summary statistic of the state of the economy. It exhibits pronounced variation over the business cycle and with the stance of monetary policy, and a tight relationship with the slope of the yield curve. Most importantly, variation in yield skewness has substantial forecasting power for future bond excess returns, high-frequency interest rate changes around FOMC announcements, and consensus survey forecast errors for the ten-year Treasury yield. The COVID pandemic did not disrupt these relations: historically high skewness correctly anticipated the run-up in long-term Treasury yields starting in late 2020. The connection between skewness, survey forecast errors, excess returns, and departures of yields from normality is consistent with a theoretical framework where one of the agents has biased beliefs.

Participation

If you would like to participate in the seminar, please send an email to the secretariat of Econometrics, eb-secr@ese.eur.nl.

More information

Secretariat Econometrics
Phone: +31 (0)10 408 12 59/ 12 64
Email: eb-secr@ese.eur.nl

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