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@article{Buraschi:2022:10.1287/mnsc.2021.3956,
author = {Buraschi, A and Whelan, P},
doi = {10.1287/mnsc.2021.3956},
journal = {Management Science},
pages = {1591--2376},
title = {Speculation, sentiment and interest rates},
url = {http://dx.doi.org/10.1287/mnsc.2021.3956},
volume = {68},
year = {2022}
}

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TY  - JOUR
AB  - We compare the implications of speculation versus hedging channels for bond markets in heterogeneous agents’ economies. Treasuries command a significant risk premium when optimistic agents speculate by leveraging their positions using bonds. Disagreement drives a wedge between marginal agent versus econometrician beliefs (sentiment). When speculative demands dominate, the interaction between belief heterogeneity and sentiment helps rationalize several puzzling characteristics of Treasury markets. Empirically, we test model predictions and find that larger disagreement (i) lowers the risk-free rate, (ii) raises the slope of the yield curve, and (iii) with positive sentiment increases bond risk premia and makes its dynamics countercyclical.
AU  - Buraschi,A
AU  - Whelan,P
DO  - 10.1287/mnsc.2021.3956
EP  - 2376
PY  - 2022///
SN  - 0025-1909
SP  - 1591
TI  - Speculation, sentiment and interest rates
T2  - Management Science
UR  - http://dx.doi.org/10.1287/mnsc.2021.3956
UR  - http://hdl.handle.net/10044/1/86132
VL  - 68
ER  -

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