Time-varying risk premia debunked: Short-term maturities reveal surprising findings.
The study looked at whether fixed risk premiums can explain changes in interest rates over time. By analyzing how different maturities react, the researchers found that fixed risk premiums alone cannot account for all the changes, especially for short-term periods up to 6 months. This suggests that other factors, like market forecasts, also play a role in determining interest rates. The researchers also developed a new method that can be used to test similar relationships in other financial assets.