On biases in tests of the expectations hypothesis of the term structure of interest rates

Bekaert, Geert; Hodrick, Robert J.; Marshall, David A.

doi:10.1016/s0304-405x(97)00007-x

Cited by 328 publications

(265 citation statements)

References 30 publications

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“…of the residuals after taking out the first n principal components. Standard deviations of residuals from using three principal components range from five to eleven basis points of annualized yields, which is roughly the same range as the measurement error described by Bekaert, Hodrick, and Marshall (1997).…”

Section: Principal Components Of Yieldsmentioning

confidence: 67%

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Forecasting Interest Rates

Duffee

2013

Handbook of Economic Forecasting

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This chapter discusses what the asset-pricing literature concludes about the forecastability of interest rates. It outlines forecasting methodologies implied by this literature, including dynamic, no-arbitrage term structure models and their macro-finance extensions. It also reviews the empirical evidence concerning the predictability of future yields on Treasury bonds and future excess returns to holding these bonds. In particular, it critically evaluates theory and evidence that variables other than current bond yields are useful in forecasting. Terms of use: Documents in EconStor mayJEL Code: G12

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Section: Principal Components Of Yieldsmentioning

confidence: 67%

“…The interpolation is inherently noisy. Bekaert, Hodrick, and Marshall (1997) estimate that the standard deviation of measurement error is in the range of seven to nine basis points of annualized yield for maturities of at least a year.…”

Section: Introductionmentioning

confidence: 99%

Forecasting Interest Rates

Duffee

2013

Handbook of Economic Forecasting

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“…The cross-country evidence about the EH is more mixed. In some countries like Germany, the EH seems to hold (n−1→n) up better than in the United States (Bekaert et al, 1997(Bekaert et al, , 2007Gerlach and Smets, 1997;Hardouvelis, 1994). Finally, the very short end of the yield curve seems to conform better with the EH (Longstaff, 2000b).…”

Section: Predictability Of Excess Returnsmentioning

confidence: 96%

“…Bekaert et al (1997) and Bekaert and Hodrick (2001) stress the importance of taking into account the small sample distributions of these R 2 s and other standard tests of the EH. Tests based on small sample distributions tend to make a weaker case against the EH.…”

Section: Predictability Of Excess Returnsmentioning

confidence: 99%

Affine Term Structure Models

Piazzesi

2010

Handbook of Financial Econometrics: Tools and Techniques

267

154

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“…Many authors argue that interest rates at di¤erent maturities move together because they are linked by the EH, and a number of studies have addressed the empirical validity of this theory. However, this literature, using a variety of tests and data, generally rejects the EH (e.g., Roll, 1970;Fama, 1984;Fama and Bliss, 1987;Frankel and Froot, 1987;Stambaugh, 1988;Froot, 1989;Campbell and Shiller, 1991;Bekaert, Hodrick, and Marshall, 1997;Bekaert and Hodrick, 2001;Clarida, Sarno, Taylor, and Valente, 2006;and Sarno, Thornton, and Valente, 2007). …”

Section: Introductionmentioning

confidence: 99%

The expectation hypothesis of the term structure of very short-term rates: Statistical tests and economic value☆

Corte

Sarno

Thornton

2008

Journal of Financial Economics

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This paper reexamines the validity of the expectation hypothesis (EH) of the term structure of US repo rates ranging in maturity from overnight to three months. We extend the work of Longstaff (2000b) in two directions: (1) we implement statistical tests designed to increase test power in this context; (2) more important, we assess the economic value of departures from the EH based on criteria of profitability and economic significance in the context of a simple trading strategy. The EH is rejected throughout the term structure examined on the basis of the statistical tests. However, the results of our economic analysis are favorable to the EH, suggesting that the statistical rejections of the EH in the repo market are economically insignificant.

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On biases in tests of the expectations hypothesis of the term structure of interest rates

Cited by 328 publications

References 30 publications

Forecasting Interest Rates

Forecasting Interest Rates

Affine Term Structure Models

The expectation hypothesis of the term structure of very short-term rates: Statistical tests and economic value☆

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