NEW ESTIMATES OF THE TERM STRUCTURE OF INTEREST RATES: 1920–1939

New estimates of the term structures of interest rates for the inter-war period are constructed using a McCulloch-type bond pricing model. The new estimates are compared to the Durand Basic Yields. The Basic Yields are found to be poor estimates: being oversmoothed, wiping out humped term structures, and emasculating the liquidity premium. In contrast, the new estimates appear to behave very much like post-war term structures: exhibiting humps at cyclic peaks and evidence of a liquidity premium.     

THE TERM STRUCTURE OF INTEREST RATES AS A COINTEGRATED SYSTEM: EMPIRICAL EVIDENCE FROM THE EUROCURRENCY MARKET

In this paper I examine the term structure of Eurocurrency interest rates from six countries (with maturities of one, two, three, and six months) using unit root tests and cointegration tests that are robust to departures from independent and identically distributed errors. The main conclusions are: (1) Eurocurrency interest rates have one (and only one) unit root when viewed individually, and (2) for each of the countries examined, Eurocurrency interest rates are cointegrated—with one equilibrium relationship—when viewed jointly. These conclusions are consistent with the weak form of the efficient market hypothesis and suggest that in efficient markets arbitrage generally prevents rates on different maturities of a given asset from drifting too far for an extended period.     

SOME EVIDENCE ON THE TERM STRUCTURE OF INTEREST RATES: HOW TO FIND A BLACK CAT WHEN IT'S NOT THERE

This paper is a critique of a recent Australian study of the term structure of interest rates. It argues that the tests used are likely to be biased and provides some evidence of this effect.     

DURATION,DEFAULT RISK,AND THE TERM STRUCTURE OF INTEREST RATES

We examine the interactive effect of default and interest rate risk on duration of defaultable bonds. We show that duration for defaultable bonds can be longer or shorter than default‐free bonds depending on the relation between default intensity and interest rates. Empirical evidence indicates that in most cases duration for defaultable bonds is much shorter than for their default‐free counterparts because of the negative relation between default risk and interest rates. Results suggest that the duration measure must be adjusted for the effects of default risk and stochastic interest rates to achieve an effective bond portfolio immunization.