Trends in Expected Returns in Currency and Bond Markets

47 Pages Posted: 1 Aug 2000

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: July 1992

Abstract

Under conventional notions about rational expectations and market efficiency, expected returns differ from the actual expost returns by a forecast error that is uncorrelated with current information. In this paper, we describe how small departures from conventional notions of rational expectations and market efficiency can produce trends in excess returns. These trends are in addition to the trends typically found in the level of asset prices themselves. We report strong evidence for the presence of additional trends in excess foreign exchange and bond returns. We also estimate the additional trend component in excess returns on foreign exchange and find that it varied between -.8% and 1% for one month returns and between -6% and 8% for three month returns.

Suggested Citation

Evans, Martin D.D. and Lewis, Karen Kay, Trends in Expected Returns in Currency and Bond Markets (July 1992). NBER Working Paper No. w4116, Available at SSRN: https://ssrn.com/abstract=233702

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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