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Title: The informational content of the embedded deflation option in TIPS
Authors: Grishchenko, Olesya V. 
Vanden, Joel M. 
Zhang, Jianing 
Issue Date: 2016
Publisher: Elsevier
Source: Grishchenko, O. V., Vanden, J. M., & Zhang, J. (2016). The informational content of the embedded deflation option in TIPS. Journal of Banking and Finance, 65, 1-26.
Journal: Journal of Banking and Finance 
Abstract: We estimate the value of the embedded option in U.S. Treasury Inflation-Protected Securities (TIPS). The embedded option value exhibits time variation that is correlated with periods of deflationary expectations. We construct embedded option explanatory variables that are statistically and economically significant for explaining future inflation, even in the presence of traditional inflation variables such as lagged inflation, the gold return, the crude oil return, the VIX return, liquidity, surveys, and the yield spread between nominal Treasuries and TIPS. After conducting robustness tests, we conclude that the TIPS embedded option contains useful information for future inflation.
DOI: 10.1016/j.jbankfin.2015.12.004
Appears in Collections:Scholarly Publications

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