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Sonderforschungsbereich 649: Ökonomisches Risiko, Humboldt-Universität Berlin >
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http://hdl.handle.net/10419/56672
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| Title: | | Mean-variance cointegration and the expectations hypothesis  |
| Authors: | | Strohsal, Till Weber, Enzo |
| Issue Date: | | 2011 |
| Series/Report no.: | | SFB 649 discussion paper 2011-007 |
| Abstract: | | The present paper sheds further light on a well-known (alleged) violation of the expectations hypothesis of the term structure (EHT) - the frequent finding of unit roots in interest rate spreads. We show that the EHT implies (i) that the nonstationarity stems from the holding premium, which is hence (ii) cointegrated with the spread. In a stochastic discount factor framework we model the premium as being driven by the integrated variance of excess returns. Introducing the concept of mean-variance cointegration we actually find cointegration relations between spreads and premia in US data. |
| Subjects: | | expectations hypothesis holding premium persistence cointegration GARCH |
| JEL: | | E43 C32 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SFB 649 Discussion Papers, HU Berlin
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