Original scientific paper
https://doi.org/10.1080/1331677X.2024.2341227
Salience effect and yield curve
Zhihao Hu
Guokai Song
Yuhan Wang
Yating Duan
Abstract
This paper studies the influence of salience on nominal and real
yield curves by introducing the salience effect in the Piazzesi and
Schneider model (hereafter PS). We construct the salience values
based on the expected consumption growth using U.S. data. We
find that salience values are negatively correlated with the
expected consumption growth rates. Based on U.S. data from
1960q1 to 2020q4, we find that the salience model can generate
upward nominal and real yield curves within reasonable risk aversion
coefficients (less than 10), as well as well-fitted average yields
with actual data. The salience model compensates for the PS or
recursive preference model’s inability to generate an upward
nominal or real yield curve within reasonable risk aversion.
Furthermore, we provide empirical support for model
implications.
Keywords
Salience; asset pricing; yield curve
Hrčak ID:
321749
URI
Publication date:
17.4.2024.
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