Preprint1996

The Expectation Theory: Tests on French, German, and American Euro-Rates

48 citations0/0 files storedRePEc: Research Papers in Economics

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Stochastic processes and financial applications

Abstract

This paper deals with tests of the expectations hypothesis of the term structure on French, German, UK and US short-term interest rates. Three tests are examined: the first is based on forward rates and the other two are based on the interest rates spread. First, we show that the puzzle highlighted by Campbell and Shiller (1991) for US data does not hold in the cases of French and UK short-term rates. Second, we propose tests for the expectations hypothesis based on error-correction specifications. These tests are shown to be much more favorable for the theory and the initial puzzle disappears.

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References

1987Cointegration and Tests of Present Value Models 1984The information in the term structure 2008Term Structure of Interest Rates 1986The Changing Behavior of the Term Structure of Interest Rates 1989Market efficiency and cointegration: an application to the sterling and deutschemark exchange markets 1995Some Lessons from the Yield Curve 2008A Cointegration Analysis of Treasury Bill Yields 1984Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?

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