An Research On The Expectations Hypothesis Of The Interest-Rate Term Structure

Interest rate term structure is the relation between the level of interest rate (or cost of borrowing) and the time to maturity, known as the "term", of the debt for a given borrower in a given currency. As one of the most established financial theory, Expectations Hypothesis of the Interest-Rate Term Structure, with the theory of rational expectations being raised, got a lot of attention of foreign scholars'research for the last two decades. Because the domestic financial market is relatively lagging behind foreign and relative data for research was extremely limited, domestic scholars research in this area are slightly behind. Expected interest rate term structure theory as one of the most established financial theories, the last two decades with the theory of rational expectations has been raised a lot of attention of foreign scholars and research. With the domestic financial market relatively lagging behind foreign, data was extremely limited and domestic researches in this area are slightly behind. From the 1990s, interest rate market progresses, the face of the impact of market interest rates, term structure of interest rates needed for the formation of the causes and the term structure of interest rates do in-depth information provided by research. In this paper, China's interest rate term structure data, using linear regression, co-integration, GARCH-M model and other methods to an empirical test of prospect theory, and on this basis, China's benchmark interest rate term structure proposed construction and selection and other related recommendations.This paper is divided into six chapters:The first chapter, the introduction, details the background and significance of theme, the theory literature review and explains the idea, innovation and inadequate of this research.Chapter 2 describes the traditional theory of the term structure of interest rates and explains the definition of term premium in the literature. Traditional theories include expectation theory, market segmentation theory and liquidity preference theory; Empirical test method, co-integration methods and two linear regression methods are proposed in this paper with an analysis of foreign term premium of three different definitions.Chapter 3 uses China's interest rate term structure data to carry out an empirical test of Expectations Hypothesis of the Interest-Rate Term Structure. China's central bank did not disclose the interest rate term structure data, and thus different interest rate systems were selected for empirical testing. Money market interest rates which include shibor interest rates, the inter-bank collateral repo rate, the capital market interest rates describes the CDC's published spot rate fixed rate debt. Co-integration test in a total of four groups, including shibor rate,1-year Treasury spot rate more than four groups, three groups of inter-bank repo rate, the interest rate system were selected from a different sequence of cross-interest groups. Linear regression test in a total of four sets of data, four of which money market interest rates, bond interest rates to one group.In Chapter 4, we further establish GARCH-M model, modeling the volatility of interest rate on the basis of analysis of time-varying term premium features.Chapter 5 discusses the construction and selection of China's money market benchmark interest rates, studies the different values of money market interest rates and analysis the impact of anomalies found during in the previous study.Chapter 6 is conclusions and policy recommendations, based on empirical analysis of the results. In this part, we propose some recommendations about the development and improvement of China's bond market, to build China's benchmark interest rate term structure.