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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page The Term Structure of Commercial Paper Rates
Chris Downing and Stephen Oliner

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 expectations hypothesis.

Keywords: Term structure, expectations hypothesis, commercial paper

Full paper (391 KB PDF)

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Last update: April 22, 2004