A Re-examination of the Rational Expectations Hypothesis of the Term Structure: Reconciling the Evidence from Long-Run and Short-Run Tests

Elias Tzavalis and Michael Wickens

International Journal of Finance & Economics, 1998, vol. 3, issue 3, 229-39

Abstract: This paper explains the contradictory findings from long-run and short-run tests of the rational expectations hypothesis of the term structure. Recent research suggests that, while the long-run tests support the theory, the short-run tests do not. Our results which are based on US Treasury bills rates confirm this and suggest that the conflict in the evidence can be explained by the presence of a stationary, time-varying, term premium. Nevertheless, "news" about future changes in short rates are far more important than the risk premium in explaining interest rate movements at the short end of the term structure, and comprise the main source of the single factor explanation that emerges from our results. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www3.interscience.wiley.com/cgi-bin/jtoc?ID=15416 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijf:ijfiec:v:3:y:1998:i:3:p:229-39

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().