Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations: Unitary, Rational, or Autoregressive

23 Pages Posted: 8 Jun 2004 Last revised: 29 Jun 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

V. Vance Roley

University of Hawaii - Shidler College of Business; National Bureau of Economic Research (NBER)

Date Written: April 1980

Abstract

This paper develops behavioral relationships explaining investors' demands for long-term bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. 'data for six major categories of bond market investors, consistently support an autoregressive expectations model. The results also have implications for further aspects of investors' portfolio behavior, including expectations formation, response to inflation, and speed of adjustment.

Suggested Citation

Friedman, Benjamin M. and Roley, V. Vance, Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations: Unitary, Rational, or Autoregressive (April 1980). NBER Working Paper No. w0178. Available at SSRN: https://ssrn.com/abstract=260367

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
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V. Vance Roley

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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