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Term Premium Determinants, Return Enhancement and Interest Rate Predictability

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  • Richard Deaves

Abstract

This paper investigates whether simple term premium estimation techniques provide potential for return enhancement and interest rate predictability. Using short‐term US government securities, during 1959—93, it is demonstrated that utilization of such knowledge allows investors to enhance returns on fixed income portfolios, provided that other than money market alternatives can be considered as potential repositories of funds. In addition, such knowledge yielded short‐term interest rate predictions that were weakly superior to other methodologies, including the naive no‐change forecast, except during the volatile early 1980s.

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  • Richard Deaves, 1998. "Term Premium Determinants, Return Enhancement and Interest Rate Predictability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3‐4), pages 485-499, April.
    • Handle: RePEc:bla:jbfnac:v:25:y:1998:i:3-4:p:485-499
    DOI: 10.1111/1468-5957.00199
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    Cited by:

    1. Inaba, Kei-Ichiro, 2020. "Japan’s impactful augmentation of quantitative easing sovereign-bond purchases," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    2. Jongen, Ron & Verschoor, Willem F.C. & Wolff, Christian C.P., 2011. "Time-variation in term premia: International survey-based evidence," Journal of International Money and Finance, Elsevier, vol. 30(4), pages 605-622, June.
    3. Valseth, Siri, 2010. "Forecasting short term yield changes using order flow. Is dealer skill a source of predictability?," UiS Working Papers in Economics and Finance 2010/12, University of Stavanger.
    4. Wolff, Christian & Verschoor, Willem F C & Jongen, Ron, 2005. "Time Variation in Term Premia: International Evidence," CEPR Discussion Papers 4959, C.E.P.R. Discussion Papers.

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