Further analysis of the expectations hypothesis using very short-term rates

Longstaff [Longstaff, F., 2000. The term structure of very short-term rates: new evidence for the expectations hypothesis. Journal of Financial Economics 58, 397–415] finds support for the expectations hypothesis at the very short end of the repurchase agreement (repo) term structure while other stu...

Full description

Saved in:
Bibliographic Details
Published in:Journal of banking & finance 2008-04, Vol.32 (4), p.600-613
Main Authors: Brown, Craig R., Cyree, Ken B., Griffiths, Mark D., Winters, Drew B.
Format: Article
Language:English
Subjects:
Capital market
Expectations
Expectations hypothesis
Financial research
Hypotheses
Interest rates
Maturity
Repurchase
Repurchase agreements
Short term
Studies
Term structure
Volatility
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Longstaff [Longstaff, F., 2000. The term structure of very short-term rates: new evidence for the expectations hypothesis. Journal of Financial Economics 58, 397–415] finds support for the expectations hypothesis at the very short end of the repurchase agreement (repo) term structure while other studies find calendar-time-based regularities cause rejection of the expectations hypothesis. Using Longstaff’s methods on a sample of repo rates that pre-dates Longstaff’s sample, we reject the expectations hypothesis for every maturity. The pre-Longstaff-sample repo data comes from a time period where the behavior of short-term interest rates is similar to the long-run average behavior of short-term interest rates. Our results imply that expectations hold when rates are less volatile and/or that we may be entering a period of lower volatility.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2007.04.026