This paper focuses on the expectations hypothesis of the term structure on long-term government bonds. Standard tests (based on the relationships between the change in the long-term rate and the spread and between the change in the short-term rate and the spread) lead to a puzzle close to the one obtained by Campbell and Shiller (1991) using US data. An approach based on stationarity of excess returns and error-correction models gives more details on these results: the expectations hypothesis is widely accepted when holding return is considered whereas it is systematically rejected when rollover return is considered.
Eric Jondeau and Roland Ricart
Classification JEL : E43
Keywords : Term structure of interest rates, Expectations hypothesis, Cointegration, Error-correction model
Updated on: 06/12/2018 11:09