University of Piraeus. International Strategic Management Association
Abstract
This paper investigates the validity of the expectations hypothesis
(EH) with time-varying, albeit stationary, term premia in the Ecu
Treasury bill market. The analysis utilises the term premium factor
representation proposed by Tzavalis and Wickens (1997) and the
modified VAR approach by Cuthbertson et al. (1997). The findings
indicate that once time-varying term premia are accounted for, estimated
models cannot reject the predictions of the EH. However,
these term premia do not exhibit strong persistence. The rejection of
the spread restriction for (n,m)=(26-week,13-week) may be due to a
small I(1) term premium and/or a slight misalignment of investment
horizons.peer-reviewe
