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The Term Structure of Interest Rates in India

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  • Rajnish Mehra
  • Arunima Sinha

Abstract

We examine the term structure of interest rates in India to see if the yield curve can be rationalized based on the ‘expectations hypothesis’. Although we find evidence of predictability for holding period returns, we reject the null hypothesis that the expectations hypothesis holds for the period under consideration. Contrary to the finding in the US, the volatility of Indian bond returns is consistent with the expectations hypothesis. Returns on long-term bonds are less volatile than those of short-term bonds. The volatility puzzle documented by Shiller on US data is not observed in Indian bond returns.

Suggested Citation

  • Rajnish Mehra & Arunima Sinha, 2016. "The Term Structure of Interest Rates in India," NBER Working Papers 22020, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22020
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    Cited by:

    1. Refet S. Gürkaynak & Jonathan H. Wright, 2012. "Macroeconomics and the Term Structure," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 331-367, June.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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