The expectations theory of term structure: evidence and implication for four developed countries
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Date
2020
Authors
Begum, Johura
University of Lethbridge. Faculty of Arts and Science
Journal Title
Journal ISSN
Volume Title
Publisher
Lethbridge, Alta. : University of Lethbridge, Department of Economics
Abstract
The Yield curve is very prominent in the economics and finance literature to analyze the behavior of households and investors towards bonds markets. In this paper we explore and test the Expectations Hypothesis (EH) of the term structure for a number of international bond markets. We use data at the short and long end maturities for the Treasury bill rate and the Government of Canada bond rate. The sample includes monthly yields for maturities ranging from 1, 3, 5-month treasury bills and 1, 5, 10 and more years for Government of Canada bonds, USA bonds, UK bonds and France bonds. We use the Engle-Granger cointegration test and OLS to estimate the spread between short and long term interest rates, including tests for serial correlation in residuals, and to test the validity of the EH. The EH is rejected in all cases.
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Keywords
economics , finance , banking , expectations theory , monetary policy , term structure , short and long term interest rate , Banks and banking , Interest rates -- Econometric models , Interest rates , Bond market , Maturity (Finance) , Bonds , Bonds -- Econometric models , Dissertations, Academic