Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market

Interrelationship between short and long term rates is vital in the understanding of interest rate behaviOur expectation hypothesis claims that the yield of the long term instrument is equal to the average of the short term rates that prevail over the long term period. According to the theory, the u...

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Main Author:	Noor Azlan Ghazali
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 1993
Online Access:	http://journalarticle.ukm.my/7940/ http://journalarticle.ukm.my/7940/ http://journalarticle.ukm.my/7940/1/769-1470-1-SM.pdf

id	ukm-7940
recordtype	eprints
spelling	ukm-79402016-12-14T06:45:42Z http://journalarticle.ukm.my/7940/ Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market Noor Azlan Ghazali, Interrelationship between short and long term rates is vital in the understanding of interest rate behaviOur expectation hypothesis claims that the yield of the long term instrument is equal to the average of the short term rates that prevail over the long term period. According to the theory, the unobserved future spot rate can be determmed from the observed spot rate. This is possible because the observed rate contains superior information of market expectation. This study investigates the validity of the expectation theory on the Malayswian T bill market for a period of 17 years (1974 - 1990). Regression and correlation analyses are used in testing the hypothesIs. The result supports the validity of the expectatIOn theory. The two expectation models employed, I.e., Perfect-ForesIght Model and Error-Learmng Model, confirm the notzon of expectatIOn hypothesIs, The forward rate Implied by the term structure form as an unbzased estlmate of future spot rate. The validity of the expectatIOn theory in different interest rate environments (declining or increasing) is also tested. The result suggests consistency in validity in all subperiOds. However, the accuracy of the predictiOn increased substantially toward the latter end of the period under study. This reflects the interest rate deregulation process which took place in the Malayszan financi market in recent years. Penerbit Universiti Kebangsaan Malaysia 1993 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/7940/1/769-1470-1-SM.pdf Noor Azlan Ghazali, (1993) Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market. Jurnal Pengurusan, 12 . pp. 27-38. ISSN 0127-2713 http://ejournals.ukm.my/pengurusan/issue/view/201
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	Interrelationship between short and long term rates is vital in the understanding of interest rate behaviOur expectation hypothesis claims that the yield of the long term instrument is equal to the average of the short term rates that prevail over the long term period. According to the theory, the unobserved future spot rate can be determmed from the observed spot rate. This is possible because the observed rate contains superior information of market expectation. This study investigates the validity of the expectation theory on the Malayswian T bill market for a period of 17 years (1974 - 1990). Regression and correlation analyses are used in testing the hypothesIs. The result supports the validity of the expectatIOn theory. The two expectation models employed, I.e., Perfect-ForesIght Model and Error-Learmng Model, confirm the notzon of expectatIOn hypothesIs, The forward rate Implied by the term structure form as an unbzased estlmate of future spot rate. The validity of the expectatIOn theory in different interest rate environments (declining or increasing) is also tested. The result suggests consistency in validity in all subperiOds. However, the accuracy of the predictiOn increased substantially toward the latter end of the period under study. This reflects the interest rate deregulation process which took place in the Malayszan financi market in recent years.
format	Article
author	Noor Azlan Ghazali,
spellingShingle	Noor Azlan Ghazali, Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market
author_facet	Noor Azlan Ghazali,
author_sort	Noor Azlan Ghazali,
title	Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market
title_short	Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market
title_full	Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market
title_fullStr	Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market
title_full_unstemmed	Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market
title_sort	term structure of interest rate: an empirical test of the expectation hypothesis on the malaysian t- bill market
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	1993
url	http://journalarticle.ukm.my/7940/ http://journalarticle.ukm.my/7940/ http://journalarticle.ukm.my/7940/1/769-1470-1-SM.pdf
first_indexed	2023-09-18T19:51:03Z
last_indexed	2023-09-18T19:51:03Z
_version_	1777406222133100544

Term structure of interest rate: an empirical test of the expectation hypothesis on the Malaysian T- Bill Market

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