Friday, October 10, 2014

Maturity P r emiums. Investments in long-term government bonds produced a negative av- erage return

Maturity P r emiums. Investments in long-term government bonds produced a negative av- erage return during the period 1977–1981. How should we interpret this? Did bond investors in 1977 expect to earn a negative maturity premium? What do these 5 years’ bond returns tell us about the normal future maturity premium?

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