We analyze how price discovery in the inter-dealer market for U.S. Treasury securities differs during stressful times from normal periods. We distinguish between three forms of stress: intense trading activity, asymmetric depth and market maker risk aversion. Using tick-by-tick data on...

We analyse high-frequency responses of the US yield curve to macroeconomic announcements, exploiting the high signal-to-noise ratios of these events. Surprises in the announcements evoke relatively weak reactions from the short maturities and the strong ones from the intermediate maturities....

Why are spreads on corporate bonds so wide relative to expected losses from default? The spread on Baa-rated bonds, for example, has been about four times the expected loss. We suggest that the most commonly cited explanations - taxes, liquidity and systematic diffusive risk - are inadequate. We...

A salient feature of the Asian crisis of 1997 was a collapse of stock markets that took place over several months. The dynamics of this collapse raises the question of what information was driving the markets. This paper examines a key aspect of this question: did information flow from the...

A measure of the credibility of monetary policy is the inflation risk premium in nominal yields. This will be time varying and can be estimated by combining the information in the nominal term structure with that in the real term structure. We estimate these risk premia using a generalized CIR...

We estimate a three-factor model to fit both the time-series dynamics and cross-sectional shapes of the U.S. term structure. In the model, three unobserved factors drive a discrete-time stochastic discount process, with one factor reverting to a fixed mean and a second factor reverting to a...

In an examination of the U.S. Treasury securities market, the authors attempt to explain the sharpest price changes and most active trading episodes. They find that each of the twenty-five largest price shocks and twenty-five greatest trading surges can be attributed to just-released...

We estimate a three-factor model to fit both the time-series dynamics and cross-sectional shapes of the U.S. term structure. In the model, three unobserved factors drive a discrete-time stochastic discount process, with one factor reverting to a fixed mean and a second factor reverting to a...

Theory and empirical evidence suggest that the term structure of interest rates reflects risk premiums as well as market expectations about future inflation and real interest rates. We propose an approach to extracting such premiums and expectations by exploiting both the comovements among...