Explaining the Failure of the Expectations Hypothesis with Short-Term Rates

Item Type Conference or Workshop Item (Paper)
Abstract

This paper provides the first systematic study of the temporal and cross-sectional variation in the risk premium of the expectations hypothesis (EH) at very short end of the term structure. Using a unique and comprehensive dataset of European repurchase (repo) rates, we explain the sources and time variation affecting the risk premium. Our results show that the EH cannot be rejected when loans are secured by safe collateral and that unconventional monetary policy can substantially reduce risk premiums. By contrast, the EH is violated when interest rates are affected by funding risk and collateral risk.

Authors Ranaldo, Angelo & Rupprecht, Matthias
Language English
Keywords Expectations hypothesis, interest rates, risk premium, monetary policy, repo
Subjects economics
finance
Institute/School ?? SoF Pr Inst ??
?? STUDENT ??
?? Inst SBF AR ??
s/bf - Swiss Institute of Banking and Finance
HSG Classification contribution to scientific community
Date 24 August 2017
Event Title EFA European Finance Association, 44th Annual Meeting
Event Location Mannheim D
Event Dates 23. - 26. August 2017
Depositing User Christina Ihasz
Date Deposited 07 Sep 2017 08:34
Last Modified 20 Feb 2018 01:21
URI: https://www.alexandria.unisg.ch/publications/251582

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Citation

Ranaldo, Angelo & Rupprecht, Matthias: Explaining the Failure of the Expectations Hypothesis with Short-Term Rates. 2017. - EFA European Finance Association, 44th Annual Meeting. - Mannheim D.

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https://www.alexandria.unisg.ch/id/eprint/251582
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