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Bond Price Volatility and Term to Maturity: A Generalized Respecification.
- Source :
- American Economic Review; Sep73, Vol. 63 Issue 4, p749-753, 5p
- Publication Year :
- 1973
-
Abstract
- This article discusses the general relationship between term to maturity and change in bond price in the U.S. The high market rates of interest in recent years have given greater practical importance to the inverse relationship between term to maturity and change in bond price. The inverse relationship between duration and coupon makes a higher coupon bond a shorter term bond than a lower coupon bond of the same maturity. To the extent bonds possessing higher risks of default carry higher coupons than default free bonds, a comparison of the rates on these two bonds of equal maturity will underestimate the magnitude of the default risk premium in periods of upward sloping yield curves and overestimate the premium in periods of downward sloping yield curves.
- Subjects :
- BOND prices
INTEREST rates
MATURITY (Finance)
BOND market
RISK premiums
ECONOMICS
Subjects
Details
- Language :
- English
- ISSN :
- 00028282
- Volume :
- 63
- Issue :
- 4
- Database :
- Complementary Index
- Journal :
- American Economic Review
- Publication Type :
- Academic Journal
- Accession number :
- 4505971