Jean-Sébastien Fontaine - Latest
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Which Model to Forecast the Target Rate?
Specifications of the Federal Reserve target rate that have more realistic features mitigate in-sample over-fitting and are favored in the data. -
What Drives Episodes of Settlement Fails in the Government of Canada Bond Market?
We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails. -
Measuring Limits of Arbitrage in Fixed-Income Markets
We use relative value to measure limits to arbitrage in fixed-income markets. Relative value captures apparent deviations from no-arbitrage relationships. It is simple, intuitive and can be computed model-free for any bond. -
What Fed Funds Futures Tell Us About Monetary Policy Uncertainty
The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a “path” factor signaling information about future policy actions, which is filtered from federal funds futures data. -
Tractable Term-Structure Models and the Zero Lower Bound
We greatly expand the space of tractable term-structure models. We consider one example that combines positive yields with rich volatility and correlation dynamics. Bond prices are expressed in closed form and estimation is straightforward. -
Funding Liquidity, Market Liquidity and the Cross-Section of Stock Returns
Following theory, we check that funding risk connects illiquidity, volatility and returns in the cross-section of stocks. We show that the illiquidity and volatility of stocks increase with funding shocks, while contemporaneous returns decrease with funding shocks. -
Bond Risk Premia and Gaussian Term Structure Models
Cochrane and Piazzesi (2005) show that (i) lagged forward rates improve the predictability of annual bond returns, adding to current forward rates, and that (ii) a Markovian model for monthly forward rates cannot generate the pattern of predictability in annual returns. -
Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy
Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements. -
Forecasting Inflation and the Inflation Risk Premiums Using Nominal Yields
We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity.