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The Term Structure of Euromarket Interest Rates: An Empirical Investigation

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  • Campbell, John Y.
  • Clarida, Richard H.

Abstract

This paper is an empirical investigation of the predictability and co-movement of risk premia in the term structure of Euromarket interest rates. We present regression results which suggest that risk premia in three Euromarket term structures and on uncovered foreign asset positions move together. We test formally the hypothesis that these risk premia move in proportion to a single latent variable. We are unable to reject this hypothesis. The single latent variable model can be interpreted as in Hansen and Hodrick (1983) and Hodrick and Srivastava (1984) as a specialization of the ICAPM in which assets have constant betas on a single, unobservable benchmark portfolio.

Suggested Citation

  • Campbell, John Y. & Clarida, Richard H., 1987. "The Term Structure of Euromarket Interest Rates: An Empirical Investigation," Scholarly Articles 3353759, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:3353759
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    References listed on IDEAS

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    1. Hakkio, Craig S, 1981. "Expectations and the Forward Exchange Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 663-678, October.
    2. Cumby, Robert E. & Huizinga, John & Obstfeld, Maurice, 1983. "Two-step two-stage least squares estimation in models with rational expectations," Journal of Econometrics, Elsevier, vol. 21(3), pages 333-355, April.
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    6. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
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    12. Campbell, John Y., 1987. "Stock returns and the term structure," Journal of Financial Economics, Elsevier, vol. 18(2), pages 373-399, June.
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