Bauer, Michael D. <br/><br/>
Interest Rate Skewness and Biased Beliefs / 
Michael D. Bauer, Mikhail Chernov. 
 - Cambridge, Mass.  National Bureau of Economic Research  2021. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w28954 .
 - Working Paper Series (National Bureau of Economic Research)  no. w28954. .
<br/><br/> June 2021. 
<br/><br/> Conditional yield skewness is an important summary statistic of the state of the economy. It exhibits pronounced variation over the business cycle and with the stance of monetary policy, and a tight relationship with the slope of the yield curve. Most importantly, variation in yield skewness has substantial forecasting power for future bond excess returns, high-frequency interest rate changes around FOMC announcements, and consensus survey forecast errors for the ten-year Treasury yield. The COVID pandemic did not disrupt these relations: historically high skewness correctly anticipated the run-up in long-term Treasury yields starting in late 2020. The connection between skewness, survey forecast errors, excess returns, and departures of yields from normality is consistent with a theoretical framework where one of the agents has biased beliefs. 
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