The expectations hypothesis of the term structure: tests on US, German, French, and UK Euro-rates

Article Abstract:

The expectations hypothesis (EH) of the term structure of Euro-rates in the US, Germany, France and the UK was tested using three tests, the first of which was based on forward rates, while the other two used interest rates spread. The tests showed that the sign puzzle in an earlier study by Campbell and Shiller was absent in French and UK short-term rates. Error-correction models for testing EH led to the disappearance of the sign puzzle, but not the country puzzle.

Eurodollar Rate, Monetary policy

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Term premiums and the integration of the Eurocurrency markets

Article Abstract:

Euromarket interest rates were studied using a single latent variable model. This was done to ascertain whether foreign currencies would conform to theories concerning excess returns formulated on US currency. The integration of the Euromarket was also studied, showing no evidence contrary to the theory of integration. Integration is the situation where assets in different currencies show similar risk-adjusted expected returns.

Analysis, Euromarkets

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Implied exchange rate distributions: evidence from OTC option markets

Article Abstract:

The three alternative smoothing approaches for converting option data into the probability density function (pdf), result in an identical pdf plainly unique from the lognormal standard, and conventionally characterized by skewness and leptokurtosis. It was shown that the stronger a currency the greater the expectations are directed towards a greater appreciation of the currency.

Currency options

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