A Defense of Traditional Hypotheses about the Term Structure of Interest Rates
AbstractExpectations theories of asset returns may be interpreted either as stating that risk premia are zero or that they are constant through time. Under the former interpretation, different versions of the expectations theory of the term structure are inconsistent with one another, but I show that this does not necessarily carry over to the constant risk premium interpretation of the theory. I present a general equilibrium example in which different types of risk premium are constant through time and dependent only on maturity. Furthermore, I argue that differences among expectations theories are second-order effects of bond yield variability. I develop an approximate linearized framework for analysis of the term structure in which these differences disappear, and I test its accuracy in practice using data from the CRSP government bond tapes.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 41 (1986)
Issue (Month): 1 (March)
Other versions of this item:
- Campbell, John, 1986. "A Defense of Traditional Hypotheses about the Term Structure of Interest Rates," Scholarly Articles 3207698, Harvard University Department of Economics.
- John Y. Campbell, 1986. "A Defense of Traditional Hypotheses About the Term Structure of InterestRates," NBER Working Papers 1508, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983.
"Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates,"
Cowles Foundation Discussion Papers
667, Cowles Foundation for Research in Economics, Yale University.
- Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
- N. Gregory Mankiw & Lawrence H. Summers, 1984.
"Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 15(1), pages 223-248.
- N. Gregory Mankiw & Lawrence H. Summers, 1987. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?," NBER Working Papers 1345, National Bureau of Economic Research, Inc.
- McCulloch, J Huston, 1971.
"Measuring the Term Structure of Interest Rates,"
The Journal of Business,
University of Chicago Press, vol. 44(1), pages 19-31, January.
- Tom Doan, . "RATS program to estimate term structure with cubic splines," Statistical Software Components RTZ00019, Boston College Department of Economics.
- Shiller, Robert & Campbell, John, 1984.
"A Simple Account of the Behavior of Long-Term Interest Rates,"
3208216, Harvard University Department of Economics.
- Campbell, John Y & Shiller, Robert J, 1984. "A Simple Account of the Behavior of Long-Term Interest Rates," American Economic Review, American Economic Association, vol. 74(2), pages 44-48, May.
- John Y. Campbell & Robert J. Shiller, 1983. "A Simple Account of the Behavior of Long-Term Interest Rates," NBER Working Papers 1203, National Bureau of Economic Research, Inc.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1981. "A Re-examination of Traditional Hypotheses about the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 36(4), pages 769-99, September.
- Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
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