New study reveals hidden bias in long-term yield forecasts.
The study looked at how the difference in interest rates can predict future changes in long-term interest rates. They found that while this prediction didn't hold true, the accuracy of the estimates improved when considering the changing risk premium. The researchers used panel data to test their hypothesis, assuming that the risk premium changes over time due to a single factor. The results showed that although the initial hypothesis was rejected, the estimates were more accurate when accounting for the changing risk premium.