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Risk premia and long rates in Ireland
Author(s) -
Cuthbertson Keith,
Bredin Don
Publication year - 2001
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.811
Subject(s) - proxy (statistics) , risk premium , economics , econometrics , term (time) , statistics , mathematics , physics , quantum mechanics
Using a number of long‐term maturities and monthly data, 1989–1997, we provide a number of tests of the expectations hypothesis (EH) of the term structure. The main insight in this paper is the use of the excess holding period return to provide a proxy for a possible time‐varying term premium. Nearly all previous studies using the VAR methodology have used only the spread and the change in (short) rates and they have ignored the excess holding period return. We find that we cannot reject the EH, but we do reject the presence of time‐varying risk premia. Copyright © 2001 John Wiley & Sons, Ltd.