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The information in the Mexican term structure of interest rates: capital market implications |
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| Institution: | 1. Belk College of Business, University of North Carolina at Charlotte, USA;2. John F. Welch College of Business, Sacred Heart University, USA;1. Imperial College Business School, Imperial College London, South Kensington Campus, London SW7 2AZ, UK;2. Saïd Business School, Oxford-Man Institute, University of Oxford, Park End Street, Oxford OX1 1HP, UK;3. Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK;4. Centre for Economic Policy Research (CEPR), 77 Bastwick Street, London EC1V 3PZ, UK |
| Abstract: | This paper employs the term structure approach to examine Mexican security markets during the recent period of political and economic turmoil. We investigate the characteristics of these markets and the forecast applicability of the pure expectations hypothesis to interest rates in Mexico. We find that both forward rates and spot rate spreads are found to have significant forecasting ability for future spot rates for Mexico. Both forecasting approaches suggest greater predictive ability during the period of higher interest rates and general economic volatility (1995–1996) than the more stable economic environment of the early 1990s (1991–1994). |
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