The Banking View of Bond Risk Premia

Volume: 75, Issue: 5, Pages: 2465 - 2502
Published: Jun 16, 2020
Abstract
Banks' balance sheet exposure to fluctuations in interest rates strongly forecasts excess Treasury bond returns. This result is consistent with optimal risk management, a banking counterpart to the household Euler equation. In equilibrium, the bond risk premium compensates banks for bearing fluctuations in interest rates. When banks' exposure to interest rate risk increases, the price of this risk simultaneously rises. We present a collection of...
Paper Details
Title
The Banking View of Bond Risk Premia
Published Date
Jun 16, 2020
Volume
75
Issue
5
Pages
2465 - 2502
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