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Risk Premium Information from Treasury-Bill Yields

Published online by Cambridge University Press:  23 January 2018

Jaehoon Lee
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Abstract

I find that short-maturity Treasury-bill yields have unique information about risk premiums that is not spanned by long-maturity Treasury-bond yields. I estimate 2 components of risk premiums: long term and short term. The long-term component steepens the slope of yield curves and has a forecastability horizon of longer than 1 year. In contrast, the short-term component affects Treasury-bill yields but is almost invisible from Treasury bonds, has a forecastability horizon of less than 1 quarter, and is related to bond liquidity premiums.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 1 , February 2018 , pp. 437 - 454
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

I am very grateful to Gregory Duffee (the referee) and Paul Malatesta (the editor) for helpful suggestions, and to Timothy Johnson, Neil Pearson, and George Pennacchi for their guidance throughout my PhD program. I also thank Geert Bekaert, Michael Imerman, Robert Kimmel, Andrea Lu, Kwangwoo Park, and the seminar participants at the University of Illinois at Urbana–Champaign; University of Technology, Sydney; Korea Advanced Institute of Science and Technology; Korea University; and Yonsei University.

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