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Kenneth Singleton, Stanford U. Print
Thursday, 29 June 2017, 16:30 - 18:00

Joint with NBB, KULeuven, UA, UCL, UGent, ULB, ULg, UMons, UNamur, USaint-Louis, Vlerick and VUB

Kenneth Singleton, Stanford University

Learning, Dispersion of Beliefs, and Risk Premiums in an Arbitrage-free Term Structure Model

Abstract :  We model a Bayesian learner who updates beliefs about risk premiums in the US Treasury market using a dynamic term structure model that conditions on belief dispersion. Learning has a significant effect on measured risk premiums. This is true even though she infers the pricing distribution from the current yield curve. Our real-time learning rule substantially outperforms the consensus forecasts of market professionals over the past twenty-five years, particularly during the years following recessions in the U.S. economy. The predictive power of dispersion in beliefs for future yields appears to be largely distinct from that of inflation and output growth.

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Location: NBB auditorium
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