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

Lucio Sarno, Daniel Thornton and Giorgio Valente (valentegiorgio@icloud.com)

No 2003-021, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper tests the expectations hypothesis (EH) using US monthly data for bond yields spanning the 1952-2003 sample period and ranging in maturity from 1 month to 10 years. We apply the Lagrange multiplier test developed by Bekaert and Hodrick (2001) and extend it to increase the test power: (a) by introducing economic variables as conditioning information; and (b) 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. ; Earlier titles: Testing the expectations hypothesis: some new evidence, New evidence on the expectations hypothesis of the term structure of bond yields

Keywords: Rational; expectations; (Economic; theory) (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-ets and nep-mac
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: The Empirical Failure of the Expectations Hypothesis of the Term Structure of Bond Yields (2007)
Working Paper: The Empirical Failure of the Expectations Hypothesis of the Term Structure of Bond Yields (2005)
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