Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If You Use a Screen Reader

This content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.

A Rational Expectations Model of Term Premia with Some Implications for Empirical Asset Demand Equations

Carl E. Walsh
The Journal of Finance
Vol. 40, No. 1 (Mar., 1985), pp. 63-83
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328048
Stable URL: http://www.jstor.org/stable/2328048
Page Count: 21
  • Read Online (Free)
  • Download ($33.95)
  • Subscribe ($19.50)
  • Cite this Item
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
A Rational Expectations Model of Term Premia with Some Implications for Empirical Asset Demand Equations
Preview not available

Abstract

This paper derives the equilibrium time series processes characterizing the prices of bonds which differ by maturity using the CAPM relationship between expected returns. The assumption of rational expectations requires that asset demand behavior, which determines bond prices in equilibrium, be based on the covariances among returns that are implied by the assumption of market clearing. This requirement imposes nonlinear restrictions on the parameters in the solution for bond prices. Some implications for the types of comparative static exercises for which it is legitimate to assume invariant demand functions are discussed, and some numerical solutions for bond prices are derived.

Page Thumbnails

  • Thumbnail: Page 
63
    63
  • Thumbnail: Page 
64
    64
  • Thumbnail: Page 
65
    65
  • Thumbnail: Page 
66
    66
  • Thumbnail: Page 
67
    67
  • Thumbnail: Page 
68
    68
  • Thumbnail: Page 
69
    69
  • Thumbnail: Page 
70
    70
  • Thumbnail: Page 
71
    71
  • Thumbnail: Page 
72
    72
  • Thumbnail: Page 
73
    73
  • Thumbnail: Page 
74
    74
  • Thumbnail: Page 
75
    75
  • Thumbnail: Page 
76
    76
  • Thumbnail: Page 
77
    77
  • Thumbnail: Page 
78
    78
  • Thumbnail: Page 
79
    79
  • Thumbnail: Page 
80
    80
  • Thumbnail: Page 
81
    81
  • Thumbnail: Page 
82
    82
  • Thumbnail: Page 
83
    83