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Interpreting the Term Structure of Interbank Rates in Hong Kong

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  • Gerlach, Stefan

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.

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  • Gerlach, Stefan, 2002. "Interpreting the Term Structure of Interbank Rates in Hong Kong," CEPR Discussion Papers 3187, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3187
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    Cited by:

    1. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2011. "The term structure of interest rates, the expectations hypothesis and international financial integration: Evidence from Asian economies," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 679-689, October.
    2. Sophocles N. Brissimis & Evangelia A. Georgiou, 2022. "The effects of Federal Reserve's quantitative easing and balance sheet normalization policies on long-term interest rates," Working Papers 299, Bank of Greece.
    3. Tak-Kuen Siu & Wai-Ki Ching & Eric Fung & Michael Ng, 2007. "Extracting Information from Spot Interest Rates and Credit Ratings using Double Higher-Order Hidden Markov Models," Computational Economics, Springer;Society for Computational Economics, vol. 29(3), pages 425-425, May.
    4. Hans Patrick Bidias-Menik & Simplice Gaël Tonmo, 2020. "Interest Rate Predictability In Some Selected African Countries," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 9(3), pages 45-60.
    5. Suzan Hol, 2006. "Determinants of long-term interest rates in the Scandinavian countries," Discussion Papers 469, Statistics Norway, Research Department.
    6. Tabak, Benjamin M. & Serra, Thiago R. & Cajueiro, Daniel O., 2009. "The expectation hypothesis of interest rates and network theory: The case of Brazil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(7), pages 1137-1149.
    7. Archawa Paweenawat, 2017. "The Information Content of the Term Structure of Interest Rates in Emerging Economies: The Case of Thailand," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 16(2), pages 136-150, August.

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    More about this item

    Keywords

    Term structure of interest rates; Expectations hypothesis; Hong kong;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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