Do Stationary Risk Premia Explain it All? Evidence from the Term Struct

41 Pages Posted: 27 Apr 2000 Last revised: 3 Jan 2002

See all articles by Martin D.D. Evans

Martin D.D. Evans

Georgetown University - Department of Economics

Karen K. Lewis

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: September 1990

Abstract

Most studies of the expectations theory of the term structure reject the model. However, the significance of the rejections depend strongly upon the form of the test. In this paper, we use the pattern of rejection across maturities to back out the implied behavior of time-varying risk premia and/or market forecasts. We then use a new technique to test whether stationary risk premia alone can be responsible for these rejections. Surprisirj1y, this test is rejected for short maturities up to 6 months, suggesting that time-varying risk premia do not explain it all. We also describe hew this method can be used to test other asset pricing relationships.

Suggested Citation

Evans, Martin D.D. and Lewis, Karen Kay, Do Stationary Risk Premia Explain it All? Evidence from the Term Struct (September 1990). NBER Working Paper No. w3451, Available at SSRN: https://ssrn.com/abstract=226687

Martin D.D. Evans (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-1570 (Phone)
202-687-6102 (Fax)

Karen Kay Lewis

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7637 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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