Predictable Changes in Yields and Forward Rates
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NBER Working Paper No. 6379
Issued in January 1998
NBER Program(s): AP
We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the largest discrepancies are at short maturities. (ii) Reasonable estimates of one-factor Cox-Ingersoll-Ross models imply regressions on the opposite side of the EH than we see in the data: regression slopes are greater than one (iii) Multifactore affine models can nevertheless approximate both departures from the EH and other properties of interest rates.
Published: Journal of Financial Economics, Volume: 59 Issue: 3 (March 2001) Pages: 281-311
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