Journal of Banking & Finance Vol. 21 No. 3 1997
Asset pricing, time-varying risk premia and interest rate risk
Abstract
This paper investigates the role of interest rate risk in explaining security price changes. We develop and test a two-factor linear beta pricing model of security returns in which the factors are the excess returns on the long-term, riskless bond and the equal-weighted equity market index. We find that time-variation in the interest rate and market risk premia influence expected security returns. Furthermore, conditional interest rate volatility affects security returns, particularly during periods of substantial interest rate movements.
- DOI
- 10.1016/s0378-4266(96)00044-1
- Volume
- 21
- Issue
- 3
- Pages
- 315-335
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib