The Treasury Yield Curve as a Cointegrated System

Term structure linkages surrounding the Plaza and Louvre accords: Evidence from Euro-rates and long-memory components

“…13 This finding is consistent with the view that, within each of the four countries, arbitrage limits the extent to which yields on different maturities of a debt security may diverge. This result, while similar to that of Bradley and Lumpkin (1992) and Hall et al (1992) for the US, and Arshanapalli and Doukas (1994) and Mougoue (1992) for several countries, is consistent with the expectations hypothesis of the term structure, in which the yield curve has predictive power for future short-term rates. A study by Gerlach and Smets (1997) of the term structure of Euro-rates for 17 countries also finds evidence ''broadly compatible'' with the expectations hypothesis.…”

“…The expectations hypothesis of the term structure, which suggests that systems of nonstationary, default-free, interest rates of different maturities should be driven by a common trend in the long run, is one of the two issues. Bradley and Lumpkin (1992), Engsted and Tanggaard (1994), and Hall et al (1992) indicate that US Treasury rates of different maturities are bound together by a single nonstationary common factor. 4 Engsted and Tanggaard examine 2-, 5-and 10-year Treasury bonds, in addition to short-term interest rates, in the US and find that the zero-sum restrictions implied on the cointegrating vector by the expectations hypothesis of the term structure cannot be rejected.…”

Value at risk models for Dutch bond portfolios

“…Furthermore, the equilibrium relationships prove to be sensitive to the monetary policy pursued. Bradley and Lumpkin (1992) model only one single equilibrium relationship between seven interest rates and subsequently show that more accurate forecasts can be made if this relationship is included in the forecasts. Almost all of these studies, however, are based on monthly data.…”

GCC equity market indices integration

“…Cointegration has been applied to other data as well. For instance, Bradley and Lumpkin (1992) use cointegration methods to examine the relation between Treasury instruments. They find strong evidence of cointegration in seven Treasury rates.…”