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In Search of Time-Varying Term Premia in the London Interbank Market

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  • Hurn, A S
  • McDonald, A D
  • Moody, T

Abstract

The market for interbank deposits provides a suitable context in which to investigate the significance of time-varying term premia in the term structure of interest rates. Recently proposed specification tests are used to identify autoregressive conditional heteroscedasticity in holding-period excess returns which incorporate errors in forecasting future short rates. Although there are sound economic grounds for expecting heteroscedastic-dependent time varying term premia, GARCH-M parameter estimates, using monthly LIBOR data for the period 1976-92, indicate that they are not an important feature of the interbank term structure, at least in the maturity range of one to six months. Copyright 1995 by Scottish Economic Society.

Suggested Citation

  • Hurn, A S & McDonald, A D & Moody, T, 1995. "In Search of Time-Varying Term Premia in the London Interbank Market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(2), pages 152-164, May.
    • Handle: RePEc:bla:scotjp:v:42:y:1995:i:2:p:152-64
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    Cited by:

    1. Ahrens, Ralf, 1999. "Improving market-based forecasts of short-term interest rates: Time-varying stationarity and the predictive content of switching regime-expectations," CFS Working Paper Series 1999/14, Center for Financial Studies (CFS).
    2. Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, "undated". "A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback," Discussion Papers 00/24, Department of Economics, University of York.

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