Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/235596
Authors: 
Bauer, Michael
Chernov, Mikhail
Year of Publication: 
2021
Series/Report no.: 
IMFS Working Paper Series No. 163
Abstract: 
Conditional yield skewness is an important summary statistic of the state of the economy. It exhibits pronounced variation over the business cycle and with the stance of monetary policy, and a tight relationship with the slope of the yield curve. Most importantly, variation in yield skewness has substantial forecasting power for future bond excess returns, high-frequency interest rate changes around FOMC announcements, and consensus survey forecast errors for the ten-year Treasury yield. The COVID pandemic did not disrupt these relations: historically high skewness correctly anticipated the run-up in long-term Treasury yields starting in late 2020. The connection between skewness, survey forecast errors, excess returns, and departures of yields from normality is consistent with a theoretical framework where one of the agents has biased beliefs.
Subjects: 
bond markets
yield curve
skewness
biased beliefs
monetary policy
JEL: 
E43
E44
E52
G12
Document Type: 
Working Paper

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