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Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations: Unitary, Rational, or Autoregressive

  • Benjamin M. Friedman
  • V. Vance Roley
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    This paper develops behavioral relationships explaining investors' demands for long-term bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. 'data for six major categories of bond market investors, consistently support an autoregressive expectations model. The results also have implications for further aspects of investors' portfolio behavior, including expectations formation, response to inflation, and speed of adjustment.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0178.

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    Date of creation: Apr 1980
    Date of revision:
    Publication status: published as Friedman, Benjamin M. and Roley, V. Vance. "Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations; Unitary, Rational, or Autoregressive." Econometrica, Vol. 47, No . 6, (November 1979), pp. 1475-1497.
    Handle: RePEc:nbr:nberwo:0178
    Note: ME
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    1. James M. Brundy & Dale W. Jorgenson, 1971. "Efficient estimation of simultaneous equations by instrumental variables," Working Papers in Applied Economic Theory 3, Federal Reserve Bank of San Francisco.
    2. Brundy, James M & Jorgenson, Dale W, 1971. "Efficient Estimation of Simultaneous Equations by Instrumental Variables," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 207-24, August.
    3. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
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