The expectations hypothesis of the term structure of interest rates: The Brazilian case revisited

ABSTRACT

This article tests the Expectations Hypothesis (EH) using Brazilian monthly data for bond yields spanning the 2000–2017 sample period and ranging in maturity from 3 months to 5 years. Three tests are examined: the first is based on interest rates spread and the other two are based on the forward rates. On balance our results suggest rejection of the EH throughout the maturity spectrum examined, and are broadly consistent with previous findings that a linear combination of forward rates provides a statistically significant prediction of bond excess returns.

KEYWORDS:

• Expectations hypothesis
• forward-rate regressions
• term structure of interest rates
• emerging market

JEL CLASSIFICATION:

• E43
• G12

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Additional details about this data set and the DI-futuro contract can be found in Caldeira, Moura, and Santos (2016).

Additional information

Funding

João F. Caldeira gratefully acknowledges support provided by CNPq [Grant numbers 309899/2015-0 and 430192/2016-9]; Conselho Nacional de Desenvolvimento Científico e Tecnológico [Grant numbers 309899/2015-0 and 430192/2016-9].