Term Premium Determinants, Return Enhancement and Interest Rate Predictability
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This paper investigates whether simple term premium estimation techniques
provide potential for return enhancement and interest rate predictability.
Using short-term US government securities, during 1959-93, it is
demonstrated that utilization of such knowledge allows investors to
enhance returns on fixed income portfolios, provided that other than money
market alternatives can be considered as potential repositories of funds.
In addition, such knowledge yielded short-term interest rate predictions
that were weakly superior to other methodologies, including the naive
no-change forecast, except during the volatile early 1980s. Copyright Blackwell Publishers Ltd 1998.