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A Theory of the Term Structure of Interest Rates

John C. Cox, Jonathan E. Ingersoll, Jr. and Stephen A. Ross
Econometrica
Vol. 53, No. 2 (Mar., 1985), pp. 385-407
Published by: The Econometric Society
DOI: 10.2307/1911242
Stable URL: http://www.jstor.org/stable/1911242
Page Count: 23
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A Theory of the Term Structure of Interest Rates
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Abstract

This paper uses an intertemporal general equilibrium asset pricing model to study the term structure of interest rates. In this model, anticipations, risk aversion, investment alternatives, and preferences about the timing of consumption all play a role in determining bond prices. Many of the factors traditionally mentioned as influencing the term structure are thus included in a way which is fully consistent with maximizing behavior and rational expectations. The model leads to specific formulas for bond prices which are well suited for empirical testing.

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