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The Behavior of Interest Rates

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Author Info
Eugene F. Fama
Abstract

The evidence in Fama and Bliss (1987) that forward interest rates forecast future spot interest rates for horizons beyond a year repeats in the out-of-sample 1986--2004 period. But the inference that this forecast power is due to mean reversion of the spot rate toward a constant expected value no longer seems valid. Instead, the predictability of the spot rate captured by forward rates seems to be due to mean reversion toward a time-varying expected value that is subject to a sequence of apparently permanent shocks that are on balance positive to mid-1981 and on balance negative thereafter. Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhj019
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 19 (2006)
Issue (Month): 2 ()
Pages: 359-379
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Handle: RePEc:oup:rfinst:v:19:y:2006:i:2:p:359-379

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This page was last updated on 2009-11-28.

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