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A test of the expectations hypothesis in very short-term international rates in the presence of preferred habitat for liquidity

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  • Kotomin, Vladimir

Abstract

This study incorporates year-end and quarter-end preferences for liquidity and other calendar-time effects into the test of the expectations hypothesis (EH) in the very short-term LIBOR (maturities of one month and shorter) in seven major world currencies. The calendar-time effects are found to alter long-term relations between very short-term rates in these currencies. These effects alone are not responsible for the rejection of the EH in the data, as it is rejected in most of the cases even after appropriate controls are introduced. However, such effects are capable of causing the EH to be rejected and should be controlled for when testing the EH in very short-term rates.

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  • Kotomin, Vladimir, 2011. "A test of the expectations hypothesis in very short-term international rates in the presence of preferred habitat for liquidity," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 49-55, February.
    • Handle: RePEc:eee:quaeco:v:51:y:2011:i:1:p:49-55
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    9. Griffiths, Mark D. & Kotomin, Vladimir & Winters, Drew B., 2009. "Year-end and quarter-end effects in the term structure of sterling repo and Eurepo rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 803-817, December.
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    Cited by:

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    3. Kopchak, Seth J., 2013. "The realized forward term premium in the repo market," Journal of Financial Markets, Elsevier, vol. 16(2), pages 253-278.
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