The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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DISCUSSION
Published: 07/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb04993.x
KENNETH J. SINGLETON
Presidential Address: How Much “Rationality” Is There in Bond‐Market Risk Premiums?
Published: 06/09/2021 | DOI: 10.1111/jofi.13062
KENNETH J. SINGLETON
Beliefs of professional forecasters are benchmarked against those of a Bayesian econometrician BE who is learning about the unknown dynamics of the bond risk factors. Consistent with rational Bayesian learning, the forecast errors of individual professionals and BE are comparably predictable over the business cycle. The secular and cyclical patterns of professionals' forecasts relative to those of BE are explored in depth. Inconsistent with many models with belief dispersion, the relationship between professionals' yield disagreement and their matched disagreements about macroeconomic fundamentals is very weak.
Default and Recovery Implicit in the Term Structure of Sovereign CDS Spreads
Published: 09/10/2008 | DOI: 10.1111/j.1540-6261.2008.01399.x
JUN PAN, KENNETH J. SINGLETON
This paper explores the nature of default arrival and recovery implicit in the term structures of sovereign CDS spreads. We argue that term structures of spreads reveal not only the arrival rates of credit events (λℚ), but also the loss rates given credit events. Applying our framework to Mexico, Turkey, and Korea, we show that a single‐factor model with λℚ following a lognormal process captures most of the variation in the term structures of spreads. The risk premiums associated with unpredictable variation in λℚ are found to be economically significant and co‐vary importantly with several economic measures of global event risk, financial market volatility, and macroeconomic policy.
Estimation and Evaluation of Conditional Asset Pricing Models
Published: 05/23/2011 | DOI: 10.1111/j.1540-6261.2011.01654.x
STEFAN NAGEL, KENNETH J. SINGLETON
We find that several recently proposed consumption‐based models of stock returns, when evaluated using an optimal set of managed portfolios and the associated model‐implied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal Generalized Method of Moments (GMM) estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors, and we show that there is an optimal choice of managed portfolios to use in testing a null model against a proposed alternative generalized SDF.
Specification Analysis of Affine Term Structure Models
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00278
Qiang Dai, Kenneth J. Singleton
This paper explores the structural differences and relative goodness‐of‐fits of affine term structure models (ATSMs). Within the family of ATSMs there is a trade‐off between flexibility in modeling the conditional correlations and volatilities of the risk factors. This trade‐off is formalized by our classification of N‐factor affine family into N+1 non‐nested subfamilies of models. Specializing to three‐factor ATSMs, our analysis suggests, based on theoretical considerations and empirical evidence, that some subfamilies of ATSMs are better suited than others to explaining historical interest rate behavior.
An Econometric Model of the Term Structure of Interest‐Rate Swap Yields
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01111.x
DARRELL DUFFIE, KENNETH J. SINGLETON
This article develops a multi‐factor econometric model of the term structure of interest‐rate swap yields. The model accommodates the possibility of counterparty default, and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, we are able to compute model‐based estimates of the defaultable zero‐coupon bond rates implicit in the swap market without having to specify a priori the dependence of these rates on default hazard or recovery rates. The time series analysis of spreads between zero‐coupon swap and treasury yields reveals that both credit and liquidity factors were important sources of variation in swap spreads over the past decade.
On Unit Roots and the Empirical Modeling of Exchange Rates
Published: 09/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03595.x
RICHARD A. MEESE, KENNETH J. SINGLETON
Tests are conducted for the presence of unit roots in the autoregressive representations of the logarithms of spot and forward exchange rates. The results from these tests provide one explanation for some of the conflicting conclusions which emerge from recent empirical papers on the foreign exchange market.
Risk Premiums in Dynamic Term Structure Models with Unspanned Macro Risks
Published: 02/26/2014 | DOI: 10.1111/jofi.12131
SCOTT JOSLIN, MARCEL PRIEBSCH, KENNETH J. SINGLETON
This paper quantifies how variation in economic activity and inflation in the United States influences the market prices of level, slope, and curvature risks in Treasury markets. We develop a novel arbitrage‐free dynamic term structure model in which bond investment decisions are influenced by output and inflation risks that are unspanned by (imperfectly correlated with) information about the shape of the yield curve. Our model reveals that, between 1985 and 2007, these risks accounted for a large portion of the variation in forward terms premiums, and there was pronounced cyclical variation in the market prices of level and slope risks.
Modeling Sovereign Yield Spreads: A Case Study of Russian Debt
Published: 02/12/2003 | DOI: 10.1111/1540-6261.00520
Darrell Duffie, Lasse Heje Pedersen, Kenneth J. Singleton
We construct a model for pricing sovereign debt that accounts for the risks of both default and restructuring, and allows for compensation for illiquidity. Using a new and relatively efficient method, we estimate the model using Russian dollar‐denominated bonds. We consider the determinants of the Russian yield spread, the yield differential across different Russian bonds, and the implications for market integration, relative liquidity, relative expected recovery rates, and implied expectations of different default scenarios.
Learning From Disagreement in the U.S. Treasury Bond Market
Published: 07/27/2020 | DOI: 10.1111/jofi.12971
MARCO GIACOLETTI, KRISTOFFER T. LAURSEN, KENNETH J. SINGLETON
We study risk premiums in the U.S. Treasury bond market from the perspective of a Bayesian econometrician BLwho learns in real time from disagreement among investors about future bond yields. Notably, disagreement has substantial predictive power for yields, and BL's risk premiums are less volatile than those in the analogous model without learning. BL's forecasts are substantially more accurate than the consensus forecasts of market professionals, particularly following U.S. recessions. The predictive power of disagreement is distinct from the (much weaker) one of inflation and output growth. Rather, it appears to reflect uncertainty about future fiscal policy.