By solving an incomplete-markets model of multiperiod bond pricing {\it backwards}, we show that the mean and autocorrelation properties of the term premiums in the yield curve can be a reflection of the temporal distribution of uninsurable income shocks, {\it i.e.}, the term structure of endowments. Moreover, agents can exhibit an equilibrium {\it preferred habitat} in bond maturities in the absence of binding portfolio restrictions.
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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number
231.
Length: Date of creation: Date of revision: Handle: RePEc:cmu:gsiawp:231
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890 Web page: http://www.tepper.cmu.edu/