Rational Expectations, the Expectations Hypothesis, and Treasury Bill Yields: An Econometric Analysis

34 Pages Posted: 28 Jun 2004 Last revised: 18 Nov 2022

See all articles by David S. Jones

David S. Jones

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

V. Vance Roley

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

Date Written: March 1982

Abstract

This paper tests the joint hypothesis of rational expectations and the expectations model of the term structure for three- and six-month Treasury bills. Previous studies are extended in three directions. First, common efficient markets-rational expectations tests are compared, and it is shown that four of the five tests considered are asymptotically equivalent, and that the fifth is less restrictive than the other four. Second, the joint hypothesis is tested using weekly data for Treasury bills maturing in exactly 13 and 26 weeks beginning in 1970 and ending in 1979. In contrast, previous studies using comparable data have typically discarded 12/13 of the sample to form a nonoverlapping data set. Finally, a more complete set of possible determinants of time-varying term premiums is tested.

Suggested Citation

Jones, David S. and Roley, V. Vance, Rational Expectations, the Expectations Hypothesis, and Treasury Bill Yields: An Econometric Analysis (March 1982). NBER Working Paper No. w0869, Available at SSRN: https://ssrn.com/abstract=300717

David S. Jones

Northwestern University - Department of Economics

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V. Vance Roley (Contact Author)

University of Hawaii at Manoa - Shidler College of Business ( email )

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