Information in the Term Structure of Yield Curve Volatility
Publication
, Journal Article
Cieslak, A; Povala, P
Published in: Journal of Finance
June 1, 2016
Using a novel no-arbitrage model and extensive second-moment data, we decompose conditional volatility of U.S. Treasury yields into volatilities of short-rate expectations and term premia. Short-rate expectations become more volatile than premia before recessions and during asset market distress. Correlation between shocks to premia and shocks to short-rate expectations is close to zero on average and varies with the monetary policy stance. While Treasuries are nearly unexposed to variance shocks, investors pay a premium for hedging variance risk with derivatives. We illustrate the dynamics of the yield volatility components during and after the financial crisis.
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Published In
Journal of Finance
DOI
EISSN
1540-6261
ISSN
0022-1082
Publication Date
June 1, 2016
Volume
71
Issue
3
Start / End Page
1393 / 1436
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
Citation
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Chicago
ICMJE
MLA
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Cieslak, A., & Povala, P. (2016). Information in the Term Structure of Yield Curve Volatility. Journal of Finance, 71(3), 1393–1436. https://doi.org/10.1111/jofi.12388
Cieslak, A., and P. Povala. “Information in the Term Structure of Yield Curve Volatility.” Journal of Finance 71, no. 3 (June 1, 2016): 1393–1436. https://doi.org/10.1111/jofi.12388.
Cieslak A, Povala P. Information in the Term Structure of Yield Curve Volatility. Journal of Finance. 2016 Jun 1;71(3):1393–436.
Cieslak, A., and P. Povala. “Information in the Term Structure of Yield Curve Volatility.” Journal of Finance, vol. 71, no. 3, June 2016, pp. 1393–436. Scopus, doi:10.1111/jofi.12388.
Cieslak A, Povala P. Information in the Term Structure of Yield Curve Volatility. Journal of Finance. 2016 Jun 1;71(3):1393–1436.
Published In
Journal of Finance
DOI
EISSN
1540-6261
ISSN
0022-1082
Publication Date
June 1, 2016
Volume
71
Issue
3
Start / End Page
1393 / 1436
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment