Virginia Polytechnic Institute
Institutional Affiliation: Virginia Polytechnic Institute
NBER Working Papers and Publications
|January 1998||Predictable Changes in Yields and Forward Rates|
with David Backus, Silverio Foresi, Liuren Wu: w6379
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 citation courtesy of