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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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File URL: http://www.sciencedirect.com/science/article/pii/S0378437108010297
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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
Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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  16. Coelho, Ricardo & Gilmore, Claire G. & Lucey, Brian & Richmond, Peter & Hutzler, Stefan, 2007. "The evolution of interdependence in world equity markets—Evidence from minimum spanning trees," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 455-466.
  17. Seo, Byeongseon, 2003. "Nonlinear mean reversion in the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2243-2265, September.
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