قیمت های آتی به عنوان تعدیل ریسک پیش بینی های سیاست های پولی
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|26350||2008||15 صفحه PDF||سفارش دهید||10413 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Monetary Economics, Volume 55, Issue 4, May 2008, Pages 677–691
Many researchers have used federal funds futures rates as measures of financial markets’ expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature.
Predicting the future course of monetary policy is of tremendous importance to financial market participants. The current state of the art in this area is to use futures contracts on the short-term interest rate that is targeted by the central bank and to interpret the futures rate on, say, the December federal funds futures contract as the market expectation of what the federal funds rate will be in December. This procedure is widely used in the financial press (e.g., The Wall Street Journal, 2005 and Financial Times, 2005), by Fed watchers (e.g., Altig, 2005 and Hamilton, 2006), by central banks (e.g., European Central Bank Monthly Bulletin, 2005, p. 24; Federal Reserve Monetary Policy Report to Congress, 2005, p. 22), and in the academic literature (e.g., Krueger and Kuttner, 1996, Rudebusch, 1998, Rudebusch, 2002 and Bernanke and Kuttner, 2005).1 The standard practice is appealing for many reasons. First, producing the forecasts is simple—the rates on various contracts can be obtained directly from futures exchanges at any time during the day. Second, the forecasts work well—federal funds futures outperform forecasts based on alternative methods, such as sophisticated time series specifications, monetary policy rules, and forecasts derived from Treasury bills or other financial market instruments (e.g., Evans, 1998 and Gürkaynak et al., 2007). Third, previous studies did not find any large time variation in risk premia in fed funds futures (e.g., Krueger and Kuttner, 1996, Sack, 2004 and Durham, 2003).2 However, there is by now a large and well-accepted body of evidence in the finance literature against the expectations hypothesis for Treasury yields (e.g., Fama and Bliss, 1987, Stambaugh, 1988, Campbell and Shiller, 1991 and Cochrane and Piazzesi, 2005). Over a very wide range of sample periods and bond maturities, excess returns on Treasury securities have been positive on average, time-varying, and significantly predictable. Time-varying risk premia in these markets may well carry over to related markets and therefore lead to systematic deviations of fed funds futures rates from expectations of the subsequently realized fed funds rate. In this paper, we show that the expectations hypothesis also fails for federal funds futures. In particular, excess returns on fed funds futures contracts at even short horizons have been positive on average and significantly predictable. The R2R2's depend on the forecast horizon and range from 10% at a two-month horizon up to 39% at a six-month horizon. We find that macroeconomic business-cycle indicators such as employment growth capture this predictability surprisingly well. We also find that financial business-cycle indicators such as corporate bond spreads and Treasury yield spreads do well at predicting excess returns. These findings stand up to a battery of robustness checks, including bootstrapped test statistics, real-time data, subsample stability pre- and post-1994, rolling-endpoint regressions, out-of-sample forecasts, and a comparison to excess returns on eurodollar futures, for which we have a somewhat longer sample. We exploit the significant predictability of excess returns on futures to propose a risk adjustment to forecasts of monetary policy. We find that not implementing our risk adjustment can produce very misleading results. Specifically, forecasts based on the expectations hypothesis make large mean errors and large mean-squared errors. Moreover, errors from unadjusted forecasts vary systematically over the business cycle; futures rates tend to overpredict in recessions and underpredict in booms. Non-risk-adjusted forecasts also tend to perform very poorly around economic turning points, adapting too slowly to changes in the direction of monetary policy. For example, right before recessions, when the Fed has already started easing, fed funds futures keep forecasting high funds rates. As a consequence, forecast errors using unadjusted futures rates are more highly autocorrelated than are forecast errors using our risk-adjusted futures rates. Our findings also suggest that monetary policy shocks may not be accurately measured by the difference between the fed funds rate target and an ex ante market expectation based on fed funds futures. Indeed, we document that the amount by which we need to adjust these shocks can be substantial, at least relative to the size of the shocks themselves. However, risk premia seem to change primarily at business-cycle frequencies, which suggests that we may be able to “difference them out” by looking at one-day changes in near-dated fed funds futures on the day of a monetary policy announcement. Indeed, our results confirm that differencing improves these policy measures. Our findings for federal funds futures complement those in the traditional finance literature on Treasuries in several ways. First, we find that the most important predictive variables for excess returns are macroeconomic variables, such as employment growth. This finding allows us to link the predictability in excess returns directly to the business cycle, while the existing literature on Treasuries has focused mainly on predictability using financial variables such as term spreads (e.g., Cochrane and Piazzesi, 2005). Second, fed funds futures are actually traded securities, while the zero-coupon yield data used in Fama and Bliss (1987) and many other papers are data constructed by interpolation schemes. While the predictability patterns in this artificial data may not lead to profitable trading rules based on actual securities, investors can implement our results directly by trading in fed funds futures. Interestingly, we document evidence that suggests that futures market participants were aware of these excess returns in real time: traders that are classified as “not hedging” by the U.S. Commodity Futures Trading Commission (CFTC) went long in these contracts precisely when we estimate that expected excess returns on these contracts were high, and they went short precisely in times when we estimate expected excess returns were very low. Finally, fed funds futures contracts have maturities of just a few months and may therefore be less risky than Treasury notes and bonds, which have durations of several years; moreover, the holding periods relevant for measuring excess returns on fed funds futures are less than one year, while the results for Treasuries typically assume that the investor holds the securities for an entire year (an exception is Stambaugh, 1988, who studies Treasury bills). Given the short maturities and required holding periods to realize excess returns in the fed funds futures market, one might think that risk premia in this market would be very small or nonexistent. We find that this is not the case. Throughout this paper, we will often use the label “risk premia” to refer to “predictable returns in excess of the risk-free rate.” This use of language should not be interpreted as taking a particular stance on the structural interpretation of our results. The existing literature has proposed several appealing explanations for why excess returns on these contracts might be predictable. Some of these explanations are based on preferences: for example, investors may exhibit risk aversion which varies over the business cycle, or care about the slow-moving, cyclical consumption of items like housing. Other explanations are based on beliefs that deviate from rational expectations, for example because of learning or for psychological reasons. It is not easy to make the case for just one of these explanations: beliefs and other preference parameters can often not be identified separately. We therefore set aside these issues as beyond the scope of the present paper. The remainder of the paper proceeds as follows. Section 2 shows that measures of excess returns on fed funds futures are identical to monetary-policy forecast errors and can be predicted using business-cycle indicators such as employment growth or corporate bond spreads. Section 3 performs a battery of robustness checks. Section 4 presents our risk-adjustment to policy forecasts and shows that failing to implement the adjustment can lead to substantial mistakes, so that the predictability of excess returns is economically as well as statistically significant. Section 5 investigates the implications of our results for measures of monetary policy “shocks” used in the literature. Section 6 concludes.
نتیجه گیری انگلیسی
We document substantial and predictable time variation in excess returns on federal funds futures. We show that excess returns on these contracts are strongly countercyclical and can be predicted with R2R2 of up to 39% using contemporaneous macroeconomic and financial business-cycle indicators such as employment growth, Treasury yield spreads, and corporate bond spreads. We also present evidence that suggests that market participants could have been and in fact were aware of these excess returns in real time, as evidence by real-time rolling-endpoint regressions and the observation that non-hedging futures market participants were large buyers of these contracts in times of high expected excess returns and large sellers in times of low or negative expected excess returns. Our findings of predictable excess returns in federal funds futures contracts have important consequences for computing market expectations from these futures rates. We find that ignoring these risk premia substantially increases forecast errors, both on average and in terms of root-mean-squared error. Moreover, unadjusted futures make forecast errors that are more autocorrelated, because unadjusted futures-based forecasts lag behind our risk-adjusted forecasts around economic turning points. Finally, we show that measures of monetary policy shocks based on the realized funds rate target minus the ex ante unadjusted fed funds futures rate are significantly contaminated by risk premia. Instead, a measure of monetary policy shocks based on the one-day change in federal funds futures around FOMC announcements seems to be more robust—for instance, it may largely “difference out” risk premia that move primarily at lower, business-cycle frequencies.