Date: Wednesday 1st May 2019
Speaker: Jules van Binsbergen (Wharton)
Seminar Title: Risk Free Interest Rates
Abstract: We estimate risk free rates unaffected by the convenience yield on safe assets by inferring them from risky options and futures prices. Our data provides time-varying estimates of the term structure of convenience yields from maturities of 1 month to 2.5 years at a minutely frequency. The convenience yield on government bonds equals about 40 basis points on average, is larger below 3 months maturity, and grows substantially during periods of financial distress. With our unique intraday estimates of the term structure of convenience yields, we estimate the high frequency response of convenience yields to monetary policy and quantitative easing. Convenience yields respond most strongly to central bank policy in the depths of the financial crisis, and both conventional and unconventional monetary stimulus reduce convenience yields. Additionally, a factor constructed from our measure of the term structure of convenience yields predicts excess bond returns even when controlling for commonly used factors in the literature. Finally, we study the dynamics of a large panel of other arbitrage spreads and find that our implied convenience yields predict other spreads and face the smallest idiosyncratic shocks, suggesting that they are highly informative measures of frictions in financial markets.
This seminar is by invitation only.