Interpreting the Term Structure of Interbank Rates in Hong Kong
30 Pages Posted: 21 Feb 2002
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Interpreting the Term Structure of Interbank Rates in Hong Kong
Date Written: February 2002
Abstract
This Paper studies the term structure of short-term interbank rates in Hong Kong. Principal component analysis suggests that the variation of the term structure can be largely attributed to two components that capture shifts in the level and slope of the yield curve. We find that term spreads contain no information about future short-term rates. The Expectations Hypothesis, which states that long-term rates depend on expected future short-term rates plus a constant term premium, is also soundly rejected by the data. We are, however, unable to reject a modified version of the EH that incorporates time-varying term premia.
Keywords: Term structure of interest rates, expectations hypothesis, Hong Kong
JEL Classification: E43
Suggested Citation: Suggested Citation
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