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Mean-Variance Cointegration and the Expectations Hypothesis

URN to cite this document:
urn:nbn:de:bvb:355-epub-151523
Strohsal, Till ; Weber, Enzo
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Date of publication of this fulltext: 31 May 2010 13:28


Abstract

The present work provides an economic explanation of a well-known (seeming) violation of the expectations hypothesis of the term structure (EHT) - the frequent finding of unit roots in interest rate spreads. We derive from EHT that the nonstationarity stems from the holding premium, which is hence cointegrated with the spread. We model the premium as being proportional to the integrated variance ...

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