The quality of public information and the term structure of interest rates

The quality of public information and the term structure of interest rates This paper analyzes the term structure of interest rates in an exchange-only Lucas (Econometrica 46:1429–1445, 1978) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We allow for deluded consumers, who exaggerate the degree of covariation between the external public signal and the growth rate. With such consumers, there can be a premium for noisy external public information in long-term bonds and the social value of more precise public information can be negative. Moreover, our model can create excessive yield volatility and deviations from the expectations hypothesis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The quality of public information and the term structure of interest rates

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Publisher
Springer Journals
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-012-0295-y
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the term structure of interest rates in an exchange-only Lucas (Econometrica 46:1429–1445, 1978) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We allow for deluded consumers, who exaggerate the degree of covariation between the external public signal and the growth rate. With such consumers, there can be a premium for noisy external public information in long-term bonds and the social value of more precise public information can be negative. Moreover, our model can create excessive yield volatility and deviations from the expectations hypothesis.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: May 31, 2012

References

  • The role of learning in dynamic portfolio decisions
    Brennan, MJ
  • Assessing asset pricing anomalies
    Brennan, MJ; Xia, Y
  • Habit formation and macroeconomic models of the term structure of interest rates
    Buraschi, A; Jiltsov, A

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