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The expectation hypothesis of interest rates and network theory: The case of Brazil

  • Tabak, Benjamin M.
  • Serra, Thiago R.
  • Cajueiro, Daniel O.

This paper investigates the topological properties of the Brazilian term structure of interest rates network. We build the minimum spanning tree (MST), which is based on the concept of ultrametricity, using the correlation matrix for interest rates of different maturities. We show that the short-term interest rate is the most important within the interest rates network, which is in line with the Expectation Hypothesis of interest rates. Furthermore, we find that the Brazilian interest rates network forms clusters by maturity.

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Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 388 (2009)
Issue (Month): 7 ()
Pages: 1137-1149

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Handle: RePEc:eee:phsmap:v:388:y:2009:i:7:p:1137-1149
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  17. Brown, Craig R. & Cyree, Ken B. & Griffiths, Mark D. & Winters, Drew B., 2008. "Further analysis of the expectations hypothesis using very short-term rates," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 600-613, April.
  18. Barthélemy, Marc & Barrat, Alain & Pastor-Satorras, Romualdo & Vespignani, Alessandro, 2005. "Characterization and modeling of weighted networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(1), pages 34-43.
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