Tài liệu Inflation-Indexed Bonds and the Expectations Hypothesis pdf

Copyright © 2011 by Carolin E. Pflueger and Luis M. Viceira

Working papers are in draft form. This working paper is distributed for purposes of comment and

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Inflation-Indexed Bonds and

the Expectations Hypothesis

Carolin E. Pflueger

Luis M. Viceira

Working Paper

11-095

Inflation-Indexed Bonds and the Expectations

Hypothesis

Carolin E. Pflueger and Luis M. Viceira1

1Pflueger: Harvard Business School, Boston MA 02163. Email [email protected]. Viceira:

Harvard Business School, Boston MA 02163 and NBER. Email [email protected]. We are grateful to

seminar participants at the HBS-Harvard Economics Finance Lunch, John Campbell, Graig Fantuzzi,

Josh Gottlieb, Robin Greenwood and Jeremy Stein for helpful comments and suggestions. We are

also grateful to Martin Duffell and Anna Christie from the UK Debt Management Office for their

help providing us with UK bond data. This material is based upon work supported by the Harvard

Business School Research Funding.

Abstract

This paper empirically analyzes the Expectations Hypothesis (EH) in inflation￾indexed (or real) bonds and in nominal bonds in the US and in the UK. We strongly

reject the EH in inflation-indexed bonds, and also confirm and update the existing

evidence rejecting the EH in nominal bonds. This rejection implies that the risk

premium on both real and nominal bonds varies predictably over time. We also find

strong evidence that the spread between the nominal and the real bond risk premium,

or the breakeven inflation risk premium, also varies over time. We argue that the time

variation in real bond risk premia mostly likely reflects both a changing real interest

rate risk premium and a changing liquidity risk premium, and that the variability in

the nominal bond risk premia reflects a changing inflation risk premium. We estimate

significant time series variability in the magnitude and sign of bond risk premia.

Key Words: TIPS, Breakeven Inflation, Return Predictability, Bond Risk Pre￾mia