Testing the Expectations Hypothesis in the Emerging Markets of the Middle East: An Application to Egyptian and Lebanese Treasury Securities

Sam Hakim and Simon Neaime

Chapter 10 in Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, 2011, pp 188-202 from Palgrave Macmillan

Abstract: Abstract For many years, and despite many rejections,1 the expectations hypothesis remains the widely accepted premise believed to explain the shape of the yield curve. In its simplest form, the expectations theory suggests that the current long-term interest rate is a weighted average of current and expected future short-term rates. In this setting, the spread between long- and short-term rates predicts future changes in short rates. Changes in the slope of the yield curve depend on interest expectations, with steeper yield curves foreboding greater expectations of rate changes.

Keywords: Interest Rate; Monetary Policy; Unit Root; Term Structure; Yield Curve (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-29520-9_10

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DOI: 10.1057/9780230295209_10

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