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...

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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
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description 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.
doi_str_mv 10.1016/j.jbankfin.2007.04.026
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source International Bibliography of the Social Sciences (IBSS); ScienceDirect Freedom Collection 2022-2024
subjects Capital market
Expectations
Expectations hypothesis
Financial research
Hypotheses
Interest rates
Maturity
Repurchase
Repurchase agreements
Short term
Studies
Term structure
Volatility
title Further analysis of the expectations hypothesis using very short-term rates
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