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The Information in Long-Maturity Forward Rates

Eugene F. Fama and Robert R. Bliss
The American Economic Review
Vol. 77, No. 4 (Sep., 1987), pp. 680-692
Stable URL: http://www.jstor.org/stable/1814539
Page Count: 13
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The Information in Long-Maturity Forward Rates
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Abstract

Current 1-year forward rates on 1- to 5-year U.S. Treasury bonds are information about the current term structure of 1-year expected returns on the bonds, and forward rates track variation through time in 1-year expected returns. More interesting, 1-year forward rates forecast changes in the 1-year interest rate 2- to 4-years ahead, and forecast power increases with the forecast power to a mean-reverting tendency in the 1-year interest rate.

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