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Testing the Expectations Hypothesis in the Emerging Markets of the Middle East: An Application to Egyptian and Lebanese Treasury Securities

In: Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models

Author

Listed:
  • Sam Hakim
  • Simon Neaime

Abstract

For many years, and despite many rejections,1 the expectations hypothesis remains the widely accepted premise believed to explain the shape of the yield curve. In its simplest form, the expectations theory suggests that the current long-term interest rate is a weighted average of current and expected future short-term rates. In this setting, the spread between long- and short-term rates predicts future changes in short rates. Changes in the slope of the yield curve depend on interest expectations, with steeper yield curves foreboding greater expectations of rate changes.

Suggested Citation

  • Sam Hakim & Simon Neaime, 2011. "Testing the Expectations Hypothesis in the Emerging Markets of the Middle East: An Application to Egyptian and Lebanese Treasury Securities," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, chapter 10, pages 188-202, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29520-9_10
    DOI: 10.1057/9780230295209_10
    as

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