Skip to main content
Article thumbnail
Location of Repository

The empirical failure of the expectations hypothesis of the term structure of bond yields \ud

By Lucio Sarno, Daniel L. Thornton and Giorgio Valente

Abstract

This paper tests the expectations hypothesis (EH) using U.S. monthly data for bond yields spanning the 1952–2003 sample period and ranging in maturity from one month to 10 years. We apply the Lagrange multiplier test developed by Bekaert and Hodrick (2001) and extend it to increase the test power by introducing economic variables as conditioning information and by using more than two bond yields in the model and testing the EH jointly on more than one pair of yields. While the conventional bivariate procedure provides mixed results, the more powerful testing procedures suggest rejection of the EH throughout the maturity spectrum examined

Topics: HB
Publisher: Cambridge University Press
Year: 2009
OAI identifier: oai:wrap.warwick.ac.uk:676

Suggested articles

Citations

  1. (2003). A Macro-Finance Model of the Term Structure, Monetary Policy, and the Economy.” Federal Reserve Bank of San Francisco Working Paper
  2. (2003). A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables.” doi
  3. (2004). A Note on the Expectations Theory and the Founding of the Fed.” doi
  4. (1997). Approximate Asymptotic P-Values for Structural Change Tests.” doi
  5. (1987). Cointegration and Tests of Present Value Models.” doi
  6. (1994). Cointegration and the U.S. doi
  7. (2000). Econometric Analysis, 4th ed.
  8. (1987). Economic Determinants of the Nominal Treasury Yield Curve.” Mimeo, Federal Reserve Bank of Chicago (2002).100
  9. (1996). Efficient Tests for an Autoregressive Unit Root.” doi
  10. (2001). Expectations Hypotheses Tests.” doi
  11. (1999). Forecasting Inflation.” doi
  12. (1991). Heteroskedasticity and Autocorrelation Consistent doi
  13. (1982). Large Sample Properties of Generalized doi
  14. (2006). Macro Factors and the Term Structure of Interest Rates.” doi
  15. (1980). Macroeconomics and Reality.” doi
  16. (1998). Measuring Monetary Policy.” doi
  17. (1989). New Hope for the Expectations Hypothesis of the Term doi
  18. (2004). New-Keynesian Macroeconomics and the Term Structure.” Mimeo, doi
  19. (1997). On Biases in doi
  20. (1994). Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative.” doi
  21. (2002). Regime Switches in Interest Rates.” doi
  22. (2001). Shifting Endpoints in the Term Structure of Interest Rates.” doi
  23. (1997). Spline Methods for Extracting Interest Rate Curves from Coupon Bond Prices.” Federal Reserve Bank of Atlanta Working Paper, doi
  24. (2002). Term Structure of Interest Rates with Regime Shifts.” doi
  25. (1988). Testing for Common Trends.” doi
  26. (1997). Testing Term Structure Estimation Methods.”
  27. (1992). Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?” doi
  28. (2005). Tests of the Expectations Hypothesis: Resolving Some Anomalies When the ShortTerm Rate is the Federal Funds Rate.” doi
  29. (2006). Tests of the Expectations Hypothesis: Resolving the Campbell-Shiller Paradox.” doi
  30. (2003). The Dynamic Relationship between the Federal Funds Rate and the Treasury Bill Rate: An Empirical Investigation.” doi
  31. (2006). The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach.” doi
  32. (2006). The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates.” doi
  33. (2005). The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models.” doi
  34. (1994). Time Series Analysis. doi
  35. (2004). Uncovered Interest Rate Parity and the Term Structure.” Mimeo, doi
  36. (2003). What Does the Yield Curve Tell Us about doi
  37. (1991). Yield Spreads and Interest Rate Movements: doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.