Irrationality and Term Structure Anomaly

I Doun Kuo ()
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I Doun Kuo: Tunghai University

No 4507033, Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences

Abstract: Campbell and Shiller (1991) find the presence of term structure anomaly, in which the slope of the term structure predicts inconsistently to the change in yield of longer-term bonds over the life of shorter-term bonds during 1952-1987. Focusing on the post Campbell and Shiller period, our findings suggest that the anomaly is not only attributed to term premia, but also relates to expectation errors. We found that macroeconomic surprises and irrationality from investors? behavior are important determinants of expectation errors. These factors are capable of explaining the rejection of the expectation hypothesis and the US term structure anomaly in long-term securities.

Keywords: Irrationality; Term structure anomaly: Expectation hypothesis; Term structure of interest rates (search for similar items in EconPapers)
JEL-codes: E43 G12 G14 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2017-04
New Economics Papers: this item is included in nep-mac
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Published in Proceedings of the Proceedings of the 7th Economics & Finance Conference, Tel Aviv, Apr 2017, pages 155-177

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iefpro:4507033

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