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The term structure of very short-term rates: New evidence for the expectations hypothesis

Journal of Financial Economics 2000 58(3), 397-415
Empirical researchers have frequently rejected the expectations hypothesis. The expectations hypothesis, however, has seldom, if ever, been tested at the extreme short end of the term structure where maturities are measured in days or weeks. Using overnight, weekly, and monthly repo rates, I find that term rates are almost unbiased estimates of the average overnight rate. This evidence provides new support for the expectations hypothesis.