Change in the Evidence against the Expectations Hypothesis of the Term Structure of Interest Rates

The EH (expectations hypothesis) is one of the main issues in the term structure of interest rates. Many papers try to test the EH in financial economics and investigate whether the EH holds in different settings. In this paper, we investigate how the evidence against the EH has changed over time, based on the Fama-Bliss regression and the Cochrane-Piazzesi regression. Furthermore, we try to find a statistical method in order to explain why the evidence against the EH has changed. Our results are as follow. Firstly, we find that the evidence against the EH has diminished over time based on the Fama-Bliss regression and the Cochrane-Piazzesi regression. Secondly, we show statistically that the overreaction hypothesis can be adequate in explaining why the evidence against the EH has weakened over time.