Work

The Banking View of Bond Risk Premia

Year: 2020

Type: article

Abstract: 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 empirical observations that support this view, but also discuss several challenges to this interpretation.

Source: The Journal of Finance

DOI: 10.1111/jofi.12949

Authors: VALENTIN HADDAD, DAVID SRAER

Institutions: National Bureau of Economic Research, University of California, Los Angeles, Center for Economic and Policy Research, University of Michigan, University of California, Berkeley

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W2554910987

FWCI: 9.611

Cites: 71

Cited by: 70

Related to: 10