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Title:Fractional cointegration in US term spreads PDF Logo
Authors:Caporale, Guglielmo Maria
Gil-Alana, Luis A.
Issue Date:2010
Series/Report no.:Discussion papers // German Institute for Economic Research 981
Abstract:This note examines the stochastic properties of US term spreads with parametric and semi-parametric fractional integration techniques. Since the observed data (rather than the estimated residuals from a cointegrating regression) are used for the analysis, standard methods can be applied. The results indicate that US Treasury maturity rates are I(1) in most cases, although the order of integration decreases with maturity. Further, mean reversion occurs for the 5, 7 and 10 year rates as well as for several term spreads, suggesting that the expectation hypothesis of the term structure is satisfied empirically.
Subjects:Term structure
long memory
fractional integration
fractional cointegration
JEL:C22
E43
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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