@article {Grishchenko5, author = {Olesya V. Grishchenko and Jing-Zhi Huang}, title = {The Inflation Risk Premium: Evidence from the TIPS Market }, volume = {22}, number = {4}, pages = {5--30}, year = {2013}, doi = {10.3905/jfi.2013.22.4.005}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This article estimates inflation risk premia using data on prices of Treasury Inflation-Protected Securities (TIPS) from 2000 to 2008. The estimation approach is arbitrage-free, largely model-free, and easy to implement. It also distinguishes between TIPS yields and real yields by explicitly taking into account the three-month indexation lag of TIPS in the analysis. In addition, we consider three measures of TIPS liquidity, including one new measure based on TIPS prices only. We estimate the liquidity premium to be around 13 basis points over the full sample but substantially higher in the first subperiod. We find that the inflation risk premium is time-varying and, on average, considerably lower than suggested by various structural models. Depending on the proxy used for expected inflation, the unconditional 10-year inflation risk premium ranges from {\textendash}9 basis points to 4 basis points over the full sample, and between 1 basis point and 6 basis points over the 2004{\textendash}2008 subperiod.TOPICS: Fixed income and structured finance, analysis of individual factors/risk premia}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/22/4/5}, eprint = {https://jfi.pm-research.com/content/22/4/5.full.pdf}, journal = {The Journal of Fixed Income} }