Outlier-Robust Evidence for the Expectation Hypothesis

18 Pages Posted: 25 Sep 2012

See all articles by Karim M. Abadir

Karim M. Abadir

Imperial College Business School

Christina V. Atanasova

Simon Fraser University

Date Written: September 25, 2012

Abstract

We provide new evidence in favor of the expectation hypothesis (EH) as a long-run theory of the term structure of interest rates. Using nonparametric techniques, we show that the results of conventional tests that reject the EH are affected by the presence of extreme observations -- only a handful in the case of longer maturities. We use recursive estimation to provide a new method that determines statistically the number of outliers that cause a theory to fail, EH in this case. When we account for these rare peso effects, the results are very different from those previously discussed in the literature.

Suggested Citation

Abadir, Karim M. and Atanasova, Christina V., Outlier-Robust Evidence for the Expectation Hypothesis (September 25, 2012). Available at SSRN: https://ssrn.com/abstract=2152057 or http://dx.doi.org/10.2139/ssrn.2152057

Karim M. Abadir (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://www3.imperial.ac.uk/portal/page?_pageid=61,629646&_dad=portallive&_schema=PORTALLIVE

Christina V. Atanasova

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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