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Testing the expectations model of the term structure in times of financial transition

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  • C. John McDermott

Abstract

The efficient market theory of the term structure (expectations theory plus rational expectations) is tested using cointegration methods and a long time span of historical data. The data are from eighteenth century England. The data set is intriguing in that it covers many sub-periods of financial transition. The contribution of this paper lies crucially on this historical period with its changing economic and political environment. For this reason considerable effort has gone into dealing with structural or transitional changes using modern econometric methods. Evidence supporting the efficient market theory is found conditional on the existence of a regime transition in the last decade of the eighteenth century.

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  • C. John McDermott, 1998. "Testing the expectations model of the term structure in times of financial transition," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 663-669.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:6:p:663-669
    DOI: 10.1080/096031098332709
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    References listed on IDEAS

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    1. George Halkos & Stephanos Papadamou, 2007. "Significance of risk modelling in the term structure of interest rates," Applied Financial Economics, Taylor & Francis Journals, vol. 17(3), pages 237-247.
    2. Minoas Koukouritakis & Leo Michelis, 2008. "The term structure of interest rates in the 12 newest EU countries," Applied Economics, Taylor & Francis Journals, vol. 40(4), pages 479-490.

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