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1997•The Journal of Financial ResearchRequires access

TIME‐VARYING TERM PREMIA AND THE BEHAVIOR OF FORWARD INTEREST RATE PREDICTION ERRORS

Sridhar Iyer

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Abstract

Abstract In this paper I examine the time‐varying expected term premium argument for the failure of the expectations hypothesis of the term structure of U.S. interest rates. Using an unobserved components model to estimate expected term premia from March 1951 to January 1991, I find considerable variation in estimated premia and significant persistence in their volatility over time.

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Abstract In this paper I examine the time‐varying expected term premium argument for the failure of the expectations hypothesis of the term structure of U.S. interest rates. Using an unobserved components model to estimate expected term premia from March 1951 to January 1991, I find considerable variation in estimated premia and significant persistence in their volatility over time.

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Available abstract

Abstract In this paper I examine the time‐varying expected term premium argument for the failure of the expectations hypothesis of the term structure of U.S. interest rates. Using an unobserved components model to estimate expected term premia from March 1951 to January 1991, I find considerable variation in estimated premia and significant persistence in their volatility over time.

Key concepts: Term (time), Forward rate, Econometrics, Economics, Volatility (finance), Risk premium, Interest rate, Short rate

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