Journal of Financial Economics Vol. 21 No. 1 1988
The information in forward rates
Abstract
Term-structure models from Cox, Ingersoll, and Ross (1985) imply that conditional expected discrete-period returns on discount instruments are linear functions of forward rates. Tests reject a single-latent-variable model of expected returns on U.S. Treasury bills, but two or three latent variables appear to describe expected returns on bills of all maturities. Expected returns estimated using two-latent-variables exhibit variation with business cycles similar to what Fama (1986) observes for forward rates. Inverted term structures precede recessions and upward-sloping structures precede recoveries.
- DOI
- 10.1016/0304-405x(88)90031-1
- Volume
- 21
- Issue
- 1
- Pages
- 41-70
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref