Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Lucas Marc Fuhrer
Author-Name-First: Lucas Marc
Author-Name-Last: Fuhrer
Author-Person: pfu165
Author-Name: Dr. Basil Guggenheim
Author-Name-First: Basil
Author-Name-Last: Guggenheim
Author-Person: pgu666
Author-Name: Dr. Matthias Jüttner
Author-Name-First: Matthias
Author-Name-Last: Jüttner
Title: What do Swiss franc Libor futures really tell us?
Abstract: This paper sheds light on Swiss franc Libor futures, which are often used to measure interest rate expectations. We show that the differences between Libor futures and realized rates (excess returns) are, on average, positive over the last 25 years. Using interest rate surveys, we decompose excess returns into a (forward) term premium and forecast errors. The decomposition reveals that the bulk of excess returns arises from forecast errors, while the term premium is time varying but on average zero. We find that the term premium positively correlates with the business cycle, interest rate developments, and in absolute values increases with interest rate uncertainty. Our findings suggest that Libor futures should be adjusted by the term premium to extract risk-neutral interest rate expectations.
Length: 24 pages
Creation-Date: 2018
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2018/working_paper_2018_06
File-Format: text/html
Number: 2018-06
Classification-JEL: E43, E44, E52
Keywords: Term premium, Libor futures, Swiss franc
Handle: RePEc:snb:snbwpa:2018-06