Riding the Yield Curve: Risk Taking Behavior in a Low Interest Rate Environment

Released on by Mr.Ralph Chami
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  • Riding the Yield Curve: Risk Taking Behavior in a Low Interest Rate Environment Book Detail

  • Author : Mr.Ralph Chami
  • Release Date : 2020-03-13
  • Publisher : International Monetary Fund
  • Genre : Business & Economics
  • Pages : 26
  • ISBN 13 : 1513531867
  • File Size : 8,8 MB
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Riding the Yield Curve: Risk Taking Behavior in a Low Interest Rate Environment by Mr.Ralph Chami PDF Summary

Book Description: Investors seek to hedge against interest rate risk by taking long or short positions on bonds of different maturities. We study changes in risk taking behavior in a low interest rate environment by estimating a market stochastic discount factor that is non-linear and therefore consistent with the empirical properties of cashflow valuations identified in the literature. We provide evidence that non-linearities arise from hedging strategies of investors exposed to interest rate risk. Capital losses are amplified when interest rates increase and risk averse investors have taken positions on instruments with longer maturity, expecting instead interest rates to revert back to their historical average.

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Fixed Income Strategy

Fixed Income Strategy

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Market players put their jobs on the line with every position they take. Any fixed income investor in the circumstance of being granted one wish would probably