Working Paper
The empirical failure of the expectations hypothesis of the term structure of bond yields
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);
Access Documents
File(s): File format is application/pdf http://research.stlouisfed.org/wp/2003/2003-021.pdf
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2005
Number: 2003-021