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Cambridge Finance Workshop - Geert Bekaert

When Jun 15, 2017
from 01:00 PM to 02:00 PM
Where Room W4.03, Cambridge Judge Business School
Contact Name
Contact Phone 01223768129
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Geert Bekaert, Finance and Economics, Columbia Business School, Leon G. Cooperman Professor of Finance and Economics.

Macro Risks and the Term Structure of Interest Rates

Abstract

We use non-Gaussian features in macroeconomic data to identify aggregate supply and demand shocks for the US economy, while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks while later recessions were driven primarily by demand shocks. The Great Recession exhibited large negative shocks to both demand and supply. We then estimate "macro risk factors" that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. The Great Moderation, a general decline in the volatility of many macroeconomic time series since the 1980s, is mostly accounted for by a reduction in the good variance risk factors. In contrast, the risk factors driving bad variance for both supply and demand shocks, which account for most recessions, show no secular decline. Finally, we find that macro risks significantly contribute to the variation in yields, bond risk premiums and bond return variances. While overall bond risk premiums are counter-cyclical, an increase in demand variance is associated with lower risk premiums on bonds.

 

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