G12 - Asset Pricing; Trading volume; Bond Interest Rates

• How Important Is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange

  Staff Working Paper 2008-47 Ron Alquist

  This paper uses the framework of arbitrage-pricing theory to study the relationship between liquidity risk and sovereign bond risk premia. The London Stock Exchange in the late 19th century is an ideal laboratory in which to test the proposition that liquidity risk affects the price of sovereign debt.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics JEL Code(s): F, F2, F21, F3, F34, F36, G, G1, G12, G15

• McCallum Rules, Exchange Rates, and the Term Structure of Interest Rates

  Staff Working Paper 2008-43 Antonio Diez de los Rios

  McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

• Macroeconomic Determinants of the Term Structure of Corporate Spreads

  Staff Working Paper 2008-29 Jun Yang

  We investigate the macroeconomic determinants of corporate spreads using a no-arbitrage technique. Structural shocks are identified by a New-Keynesian model. Treasury bonds are priced in an affine model with time-varying risk premia.

  Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, G, G1, G12

• Good Policies or Good Fortune: What Drives the Compression in Emerging Market Spreads?

  Staff Working Paper 2008-25 Philipp Maier, Garima Vasishtha

  Since 2002, spreads on emerging market sovereign debt have fallen to historical lows. Given the close links between sovereign spreads, capital flows to emerging markets, and economic growth, understanding the factors driving these spreads is very important. We address this issue in two stages.

  Content Type(s): Staff research, Staff working papers Topic(s): Development economics, Financial stability, International topics JEL Code(s): E, E4, E43, F, F3, F34, G, G1, G12, G15

• Information Shocks, Jumps, and Price Discovery - Evidence from the U.S. Treasury Market

  Staff Working Paper 2008-22 George Jiang, Ingrid Lo, Adrien Verdelhan

  We examine large price changes, known as jumps, in the U.S. Treasury market. Using recently developed statistical tools, we identify price jumps in the 2-, 3-, 5-, 10-year notes and 30-year bond during the period of 2005-2006.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): G, G1, G12, G14

• On Portfolio Separation Theorems with Heterogeneous Beliefs and Attitudes towards Risk

  Staff Working Paper 2008-16 Fousseni Chabi-Yo, Eric Ghysels, Eric Renault

  The early work of Tobin (1958) showed that portfolio allocation decisions can be reduced to a two stage process: first decide the relative allocation of assets across the risky assets, and second decide how to divide total wealth between the risky assets and the safe asset. This so called twofund separation relies on special assumptions on either returns or preferences.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): C, C5, C52, D, D5, D58, G, G1, G11, G12

• Default Dependence: The Equity Default Relationship

  Staff Working Paper 2008-1 Stuart Turnbull, Jun Yang

  The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): G, G1, G12, G13