Keywords: Term structure, expectations hypothesis, commercial paper
Abstract: This paper tests the expectations hypothesis in the market for commercial paper.
Our main dataset, which is new to the literature, consists of daily indexes constructed
from the actual market yields for nearly all commercial paper issued by U.S. corporations
between January 1998 and August 2003. We show that the term premia built into
commercial paper yields rise dramatically at year-end, causing the expectations
hypothesis to be rejected. However, once we control for these predictable year-end
effects, we find the reverse--that commercial paper yields largely conform with the
Full paper (391 KB PDF)
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Last update: April 22, 2004