Implicit Inflation and Risk Premiums in the Brazilian Fixed Income Market

Mariani, Lucas Argentieri; Laurini, Márcio Poletti

doi:10.1080/1540496x.2016.1193730

Cited by 6 publications

(4 citation statements)

References 13 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The evidence does not allow us to conclude that there is a relevant impact of expected inflation on the Ibovespa analysts' EPS forecast. Mariani and Laurini (2017) shows that inflation expectations obtained from the breakeven inflation rate (the difference between nominal and real yields) tend to be more accurate than inflation expecta-13 Sharpe (2002) study further the relation between stock returns and inflation by analyzing the long-run relation between stock returns, real bond yields and dividends, following the decomposition of Campbell and Shiller (1988a,b). Sharpe finds that the negative relation between expected inflation and equity returns can be explained by a negative correlation between expected inflation and expected real earnings growth and a positive correlation between inflation and higher equity real returns.…”

Section: Resultsmentioning

confidence: 99%

“…Here, we observe the breakeven inflation rate and assign changes in the breakeven rate to changes in inflation expectations. See Mariani and Laurini (2017) for the decomposition of the breakeven inflation into implicit inflation and risk premium and additional discussion. See also Mariani and Laurini for a description of the fixed income market in Brazil and for the relevance of the NTN-B bonds to obtain inflation expectations for the IPCA.…”

Section: Rev Bras Finanças (Online) Rio Dementioning

confidence: 99%

See 1 more Smart Citation

Inflation and Stock Returns at B3

Chaves¹,

Silva²

2019

Braz. Rev. Fin.

View full text Add to dashboard Cite

We examine the impact of expected inflation on stock returns. We use inflation forecasts from the Focus survey and real returns of Ibovespa (the index of B3, the Brazilian stock exchange). In our main specification, an increase of 1 percentage point in expected inflation for the next 12 months is associated with a decline of 0.57 percentage points in stock returns. Stock returns react negatively to the 5-year CDS volatility and the VIX index. A simulated portfolio with a strategy based on changes in inflation expectations from 2003 to 2016 has cumulated real returns of 135 percent while cumulated real Ibovespa returns are 48 percent. The strategy implies higher cumulated real returns compared with Ibovespa in 69 percent of the period.

show abstract

Section: Resultsmentioning

confidence: 99%

Section: Rev Bras Finanças (Online) Rio Dementioning

confidence: 99%

Inflation and Stock Returns at B3

Chaves¹,

Silva²

2019

Braz. Rev. Fin.

View full text Add to dashboard Cite

show abstract

“…Secondly, difficulties in negotiating government securities in the secondary market may lead to agents demanding a liquidity premium. Notwithstanding, several studies suggest inflation risk premium tends to be small or even negative (Ang, Bekaert, & Wei, 2008;Buraschi & Jiltsov, 2005;Christensen, Lopez, & Rudebusch, 2010;Hördahl & Tristani, 2012;Mariani & Laurini, 2017). It is a fact that risk premiums may contain relevant information, and central banks aiming at stabilizing inflation expectations should also be concerned with minimizing uncertainty about inflation (Strohsal & Winkelmann, 2015).…”

Section: Extracting Survey-based and Market-based Inflation Expectationsmentioning

confidence: 99%

Rationality and anchoring of inflation expectations: An assessment from survey‐based and market‐based measures

Mendonça

Garcia

Vicente

2021

Journal of Forecasting

View full text Add to dashboard Cite

The aim of this paper is twofold. Firstly, we test the rationality of survey-based and market-based inflation expectations. Secondly, we investigate whether they indicate a different performance of the central bank in anchoring inflation expectations. Briefly, this paper verifies if inflation expectations' proxies display the same features regarding rationality and anchoring. Using data from the Brazilian market, we present robust evidence that both survey-based and market-based inflation expectations have useful content to explain realized inflation. Moreover, we find that these proxies of inflation expectations provide different assessments of the central bank's ability to anchor inflation expectations. The findings point out that central banks must monitor both survey-based and market-based inflation expectations to improve their monetary policy conduct.

show abstract

“…If an agent does not revise his or her expectations in the last thirty days, this information is not considered in statistic calculations. An important incentive of this system is the monthly release of best performing institutions, indicated in the top five predictors for each macroeconomic variable monitored in the system (see Mariani and Laurini [18] for a thorough description of the Focus survey). We now verify whether processes describing forward rates, Focus forecasts, and the spot exchange rate are consistent with a martingale process-as expected by the first theorem of asset pricing.…”

Section: Empirical Evidencementioning

confidence: 99%

Foreign Exchange Expectation Errors and Filtration Enlargements

Chaim

Laurini

2019

Stats

View full text Add to dashboard Cite

Extrapolations of future market forward rates are a better predictor of the 30-days ahead BRL-USD exchange rate than forecasts from the Central Bank Focus survey of Brazilian market participants. This is puzzling because market participants observe forward rates as they submit predictions, and thus these agents perform biased forecasts even though they have access to a set of unbiased forecasts, consistent with a martingale process for the exchange rate. We argue that this rational conundrum can be explained by a mechanism through which new information enlarges the information set (a filtration), changing the underlying measure and inducing a drift into the martingale process, turning the process into a strict local martingale and generating a forecast bias. Empirical results suggest that Focus survey forecasts indeed display characteristics of a strict local martingale, while spot exchange rates and forward rates are consistent with a martingale process.

show abstract

Implicit Inflation and Risk Premiums in the Brazilian Fixed Income Market

Cited by 6 publications

References 13 publications

Inflation and Stock Returns at B3

Inflation and Stock Returns at B3

Rationality and anchoring of inflation expectations: An assessment from survey‐based and market‐based measures

Foreign Exchange Expectation Errors and Filtration Enlargements

Contact Info

Product

Resources

About