Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations: Unitary, Rational, or Autoregressive

Benjamin M. Friedman and V. Vance Roley

No 178, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops behavioral relationships explaining investors' demands for long-term bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. 'data for six major categories of bond market investors, consistently support an autoregressive expectations model. The results also have implications for further aspects of investors' portfolio behavior, including expectations formation, response to inflation, and speed of adjustment.

Date: 1980-04
Note: ME
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Published as Friedman, Benjamin M. and Roley, V. Vance. "Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations; Unitary, Rational, or Autoregressive." Econometrica, Vol. 47, No . 6, (November 1979), pp. 1475-1497.

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