Is interest rate volatility necessarily harmful?

Laurence Kantor, Raymond Lombra

Research output: Contribution to journalArticle

Abstract

It is frequently argued that increased interest rate volatility increases risk and thus, disrupts the saving-investment process. Using a mean-variance portfolio framework, this paper shows that increased interest rate volatility does not necessarily increase risk or reduce investor utility. The factors that determine whether heightened interest rate volatility increases or decreases investor risk and utility are derived and analyzed. Finally, evidence using variances, covariances and levels of asset returns is presented to provide insight into recent changes in interest rate volatility and associated changes in the risk borne and returns earned by investors.

Original languageEnglish (US)
Pages (from-to)17-25
Number of pages9
JournalJournal of Economics and Business
Volume40
Issue number1
DOIs
StatePublished - Feb 1988

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Interest rate volatility
Investors
Investment process
Factors
Mean-variance portfolios
Saving-investment
Asset returns
Risk and return

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

Cite this

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abstract = "It is frequently argued that increased interest rate volatility increases risk and thus, disrupts the saving-investment process. Using a mean-variance portfolio framework, this paper shows that increased interest rate volatility does not necessarily increase risk or reduce investor utility. The factors that determine whether heightened interest rate volatility increases or decreases investor risk and utility are derived and analyzed. Finally, evidence using variances, covariances and levels of asset returns is presented to provide insight into recent changes in interest rate volatility and associated changes in the risk borne and returns earned by investors.",
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Is interest rate volatility necessarily harmful? / Kantor, Laurence; Lombra, Raymond.

In: Journal of Economics and Business, Vol. 40, No. 1, 02.1988, p. 17-25.

Research output: Contribution to journalArticle

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