We develop a model that can match two stylized facts of the term-structure. The first stylized fact is the predictability of excess returns on long-term bonds. Modeling this requires sufficient volatility and persistence in the price of risk. The second stylized fact is that long-term yields are...

We develop a model that can match two stylized facts of the term-structure. The first stylized fact is the predictability of excess returns on long-term bonds. Modeling this requires sufficient volatility and persistence in the price of risk. The second stylized fact is that long-term yields are...

We analyze the impact of the bank CEO’s pay-risk sensitivity (‘vega’) on four loan contract terms, loan spreads, existence of collateral, and the number and strictness of covenants. Using a bank-level fixed effects model to control for time-invariant bank characteristics, we find that...