Futures prices and inflation information |
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Authors: | Chen-Chin Chu |
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Institution: | (1) Department of Finance, Insurance, and Real Estate, Memphis State University, 38152 Memphis, TN |
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Abstract: | This study examines the timing and speed with which inflation futures prices absorb inflation information. Results of the
study show that inflation futures prices already reflect the expected inflation. Moreover, 71% of unexpected inflation has
been reflected in futures prices about 25 business days prior to the Consumer Price Index (CPI) announcement, which usually
coincides with the end of the CPI measurement period. Reaction to the remaining 29% occurs on and shortly after the CPI announcement
date, especially on day 0 and day 2. The inflation risk premium that investors are willing to pay to avoid uncertain inflation
is estimated to be 1.41% per annum. |
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Keywords: | futures prices inflation information inflation risk premium |
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