Publication Type

Journal Article

Version

publishedVersion

Publication Date

9-1999

Abstract

This paper explores whether excess holding period returns on long vis-a-vis short-term securities behave in a manner that is consistent with (1) market efficiency, (2) the time-varying-term-premium variant of the expectations hypothesis, and (3) theories of the term premium that view it as a reward for risk bearing. Both traditional and modern theories of the term premium imply that it should evolve fairly slowly over time as attitudes toward risk and/or perceived covariances with wealth or consumption change. This implies that this period's term premium should have some predictive ability for next period's. However, we find that this quarter's ex-post term premium has zero predictive ability. For monthly rates and returns, the evidence is less clear cut, but again the implied term premia do not behave in a manner consistent with existing theories.

Keywords

Securities, risk

Discipline

Business | Corporate Finance | Finance and Financial Management

Research Areas

Finance

Publication

Review of Quantitative Finance and Accounting

Volume

13

Issue

2

First Page

137

Last Page

151

ISSN

0924-865X

Identifier

10.1023/A:1008343809125

Publisher

Kluwer

Copyright Owner and License

Publisher

Additional URL

https://doi.org/10.1023/A:1008343809125

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