Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 1979, Volume 47, Issue 6

Investors' Portfolio Behavior under Alternative Models of Long-Term Interest Rate Expectations: Unitary, Rational, or Autoregressive

https://doi.org/0012-9682(197911)47:6<1475:IPBUAM>2.0.CO;2-X
p. 1475-1498

Benjamin M. Friedman, V. Vance Roley

This paper develops behavioral relationships explaining investors' demands for longterm bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. data for six major categories of bond market investors, consistently support an autoregressive expectations model. The results also have implications for further aspects of investors' portfolio behavior, including expectations formation, response to inflation, and speed of adjustment.


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