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Irrationality and Term Structure Anomaly

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  • I Doun Kuo

    (Tunghai University)

Abstract

Campbell and Shiller (1991) find the presence of term structure anomaly, in which the slope of the term structure predicts inconsistently to the change in yield of longer-term bonds over the life of shorter-term bonds during 1952-1987. Focusing on the post Campbell and Shiller period, our findings suggest that the anomaly is not only attributed to term premia, but also relates to expectation errors. We found that macroeconomic surprises and irrationality from investors? behavior are important determinants of expectation errors. These factors are capable of explaining the rejection of the expectation hypothesis and the US term structure anomaly in long-term securities.

Suggested Citation

  • I Doun Kuo, 2017. "Irrationality and Term Structure Anomaly," Proceedings of Economics and Finance Conferences 4507033, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:4507033
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Irrationality; Term structure anomaly: Expectation hypothesis; Term structure of interest rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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