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Empirical TIPS

Roll, Richard (2004) Empirical TIPS. Financial Analysts Journal, 60 (1). pp. 31-53. ISSN 0015-198X. doi:10.2469/faj.v60.n1.2591.

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U.S. Treasury Inflation-Indexed Securities (commonly known as TIPS) were first issued in January 1997. Through the third quarter of 2003, 12 TIPS had been issued, with original maturities ranging from 5 to 30 years. One TIP bond has already matured. This study documents the correlations of TIPS returns with the returns on nominal bonds and with equity returns over the past seven years; TIPS real and effective nominal durations; and changes in the volatility of TIPS over time. TIPS are used here to estimate real yield curves, which are then compared against nominal yield curves to derive the term structure of anticipated inflation on a daily basis. An explanation offered for the dramatic decline in TIPS real yields since 1999 is supported by empirical tests. Finally, given plausible assumptions about future expected returns, the article shows that an investment portfolio diversified between U.S. equities and nominal bonds would be improved by the addition of TIPS.

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Additional Information:© 2004 Chartered Financial Analysts Institute. I am indebted to Barclays Capital for making the TIPS data available, to Kevin Lee and Feifei Li for outstanding research assistance, and to seminar participants at the Harvard Business School, the Universität Konstanz, and the Universität Mannheim.
Issue or Number:1
Record Number:CaltechAUTHORS:20190506-104550337
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Official Citation:Richard Roll (2004) Empirical TIPS, Financial Analysts Journal, 60:1, 31-53, DOI: 10.2469/faj.v60.n1.2591
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95245
Deposited By: Tony Diaz
Deposited On:06 May 2019 18:10
Last Modified:16 Nov 2021 17:11

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