Economics, Econometrics and Finance
8 years ago

New study reveals hidden risk in interest rates, impacting long-term investments.

Regime-switching risk in the Term Structure of Interest Rates
Shu Wu, Yong Zeng

Paper Summary

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The study looks at how changes in the economy can affect interest rates. By including the risk of sudden shifts in the market, the researchers found that long-term bond prices are influenced more than previously thought. Ignoring this risk can lead to underestimating long-term interest rates and creating flatter yield curves.