Empirical Economics

, Volume 15, Issue 3, pp 245–265 | Cite as

Forward rates and the expectations theory of the term structure: Tests for the Federal Republic of Germany

  • W. Klein


The expectations theory of the term structure was tested using data from West German capital and money markets for the period 1975:01–1986:12. If forward rates implicit in the term structure are market expectations of future spot rates, and if term premia are not time-dependent, then forward rates should follow a martingale sequence. This hypothesis was tested with the aid of standard time series techniques (autocorrelation functions, Box-Pierce, unit-roots,F-tests and co-integration). The expectations theory was for the most part rejected, although the martingale property, or equivalently, weak form efficiency, held for the latter part of the test period. The rejection of the simple expectations theory is consistent with the hypothesis of time-varying term premia.


Interest Rate Unit Root Term Structure Forward Rate Spot Rate 
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Copyright information

© Physica-Verlag 1990

Authors and Affiliations

  • W. Klein
    • 1
  1. 1.Eschersheimer Landstr. 24aFrankfurt/Main 1

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