Learning From Disagreement in the U.S. Treasury Bond Market
Corresponding Author
MARCO GIACOLETTI
Correspondence: Marco Giacoletti, Marshall School of Business, University of Southern California, 3670 Trousdale Pkwy, Los Angeles, CA 90089; email: marco.giacoletti@marshall.usc.edu.
Search for more papers by this authorKRISTOFFER T. LAURSEN
Search for more papers by this authorKENNETH J. SINGLETON
Marco Giacoletti is at the Marshall School of Business, University of Southern California. Kristoffer Laursen is at AQR Capital Management, LLC. Kenneth Singleton is at the Stanford University, Graduate School of Business, and NBER. We are grateful for feedback from Darrell Duffie; Lars Lochstoer; Jules Van Binsbergen; and seminar participants at Columbia University, University of Michigan, University of Southern California, Washington University-St. Louis, EPFL, Barcelona GSE Forum, USI, and York University, as well as Editor Wei Xiong and two anonymous referees. No third party had the right to review this paper prior to its circulation and submission. Giacoletti and Singleton have nothing to disclose in regard to The Journal of Finance Disclosure Policy. Laursen is an employee of AQR Capital Management, which is a global investment management firm that may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed in this writing are those of the authors and not necessarily those of AQR.
Search for more papers by this authorCorresponding Author
MARCO GIACOLETTI
Correspondence: Marco Giacoletti, Marshall School of Business, University of Southern California, 3670 Trousdale Pkwy, Los Angeles, CA 90089; email: marco.giacoletti@marshall.usc.edu.
Search for more papers by this authorKRISTOFFER T. LAURSEN
Search for more papers by this authorKENNETH J. SINGLETON
Marco Giacoletti is at the Marshall School of Business, University of Southern California. Kristoffer Laursen is at AQR Capital Management, LLC. Kenneth Singleton is at the Stanford University, Graduate School of Business, and NBER. We are grateful for feedback from Darrell Duffie; Lars Lochstoer; Jules Van Binsbergen; and seminar participants at Columbia University, University of Michigan, University of Southern California, Washington University-St. Louis, EPFL, Barcelona GSE Forum, USI, and York University, as well as Editor Wei Xiong and two anonymous referees. No third party had the right to review this paper prior to its circulation and submission. Giacoletti and Singleton have nothing to disclose in regard to The Journal of Finance Disclosure Policy. Laursen is an employee of AQR Capital Management, which is a global investment management firm that may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed in this writing are those of the authors and not necessarily those of AQR.
Search for more papers by this authorABSTRACT
We study risk premiums in the U.S. Treasury bond market from the perspective of a Bayesian econometrician who learns in real time from disagreement among investors about future bond yields. Notably, disagreement has substantial predictive power for yields, and 's risk premiums are less volatile than those in the analogous model without learning. '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.
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