Cointegration Analysis of the Expectations Theory of the Term Structure
Format of Original
Journal of Economics and Business
This paper tests the expectations theory of the term structure at the short end of the maturity spectrum. Using Johansen's maximum-likelihood approach to estimation and inference on cointegration, it is found that in the period from 1981.3 through 1994.1, a survey-based measure of expected future 3-month Treasury bill rate is cointegrated with the forward rate calculated from the 3- and 6-month Treasury bill yields. Moreover, along the stochastic trend common to these rates, the pure form of the expectations theory is rejected but the strong form of this theory is not.
Nourzad, Farrokh and Grennier, R. Scott, "Cointegration Analysis of the Expectations Theory of the Term Structure" (1995). Economics Faculty Research and Publications. 165.