The Monotonicity of the Term Premium: Another Look (Reprint 026)

Matthew Richardson, Paul Richardson and Tom Smith

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: This paper reexamines evidence on the monotonicity of the term premium. Using a recently developed approach for testing inequality constraints, we propose and conduct tests for whether the term premium is monotonic and reach different conclusions from those implied by individual t-statistics on term premiums, even under a Bonferroni-type adjustment. Our results generally support McCulloch’s (1987) view that the liquidity preference hypothesis remains unrefuted.

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