Information in the Term Structure of Libor Interest Rates

Abstract

Using Eurodollar futures prices to assess information in the term structure of interest rates we find that Eurodollar futures rates have power to forecast period profits in the Eurodollar futures market (based on LIBOR). The more interesting discovery is that short-term implied futures rates have very little power in forecasting future changes in spot rates in the Eurodollar futures market. Instead, evidence in our regressions suggests that information in the term structure of LIBOR is contained in the longer maturity Eurodollar futures contracts.

Keywords: Term structure, expectations hypothesis, Eurodollar futures, LIBOR

JEL Classification: E43