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Rational Expectations, the Expectations Hypothesis, and Treasury Bill Yields: An Econometric Analysis

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  • David S. Jones
  • V. Vance Roley

Abstract

This paper tests the joint hypothesis of rational expectations and the expectations model of the term structure for three- and six-month Treasury bills. Previous studies are extended in three directions. First, common efficient markets-rational expectations tests are compared, and it is shown that four of the five tests considered are asymptotically equivalent, and that the fifth is less restrictive than the other four. Second, the joint hypothesis is tested using weekly data for Treasury bills maturing in exactly 13 and 26 weeks beginning in 1970 and ending in 1979. In contrast, previous studies using comparable data have typically discarded 12/13 of the sample to form a nonoverlapping data set. Finally, a more complete set of possible determinants of time-varying term premiums is tested.

Suggested Citation

  • David S. Jones & V. Vance Roley, 1982. "Rational Expectations, the Expectations Hypothesis, and Treasury Bill Yields: An Econometric Analysis," NBER Working Papers 0869, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0869
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    Cited by:

    1. V. Vance Roley, 1982. "The Response of Short-Term Interest Rates to Weekly Money Announcements," NBER Working Papers 1001, National Bureau of Economic Research, Inc.
    2. I. G. Sharpe, 1983. "New Information and Australian Equity Returns: A Multivariate Analysis," Australian Journal of Management, Australian School of Business, vol. 8(1), pages 21-34, June.
    3. Leiderman, Leonardo & Blejer, Mario I., 1983. "New Evidence on the Rational Expectations Theory of the Term Structure: The Case of Argentine Interest Rates," Foerder Institute for Economic Research Working Papers 275370, Tel-Aviv University > Foerder Institute for Economic Research.
    4. Ian G. Sharpe, 1985. "Interest Parity, Monetary Policy and the Volatility of Australian Short‐Term Interest Rates: 1978–1982," The Economic Record, The Economic Society of Australia, vol. 61(1), pages 436-444, March.
    5. Lawrence H. Summers, 1982. "Do We Really Know That Financial Markets Are Efficient?," NBER Working Papers 0994, National Bureau of Economic Research, Inc.
    6. 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.

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