The Term Structure of Interest Rates in India

48 Pages Posted: 23 Feb 2016

See all articles by Arunima Sinha

Arunima Sinha

Fordham University

Rajnish Mehra

Arizona State University (ASU) - W.P Carey School of Business, Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 21, 2016

Abstract

We examine the term structure of interest rates in India to see if the yield curve can be rationalized based on the ‘expectations hypothesis’. Although we find evidence of predictability for holding period returns, we reject the null hypothesis that the expectations hypothesis holds for the period under consideration. Contrary to the finding in the US, the volatility of Indian bond returns is consistent with the expectations hypothesis. Returns on long-term bonds are less volatile than those of short-term bonds. The volatility puzzle documented by Shiller on US data is not observed in Indian bond returns.

Keywords: Indian Bond markets, Expectations Hypothesis, Excess Volatility

JEL Classification: E43, E44, G12, G15

Suggested Citation

Sinha, Arunima and Mehra, Rajnish, The Term Structure of Interest Rates in India (February 21, 2016). Available at SSRN: https://ssrn.com/abstract=2735925 or http://dx.doi.org/10.2139/ssrn.2735925

Arunima Sinha (Contact Author)

Fordham University ( email )

Bronx, NY 10458
United States

Rajnish Mehra

Arizona State University (ASU) - W.P Carey School of Business, Department of Economics ( email )

Tempe, AZ 85287-3806
United States
480 965 6335 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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