Chen, C. Y.-H. , Kuo, I.-D. and Chiang, T. C. (2014) What explains deviations in the unbiased expectations hypothesis? Market irrationality vs. the peso problem. Journal of International Financial Markets, Institutions and Money, 30, pp. 172-190. (doi: 10.1016/j.intfin.2014.01.009)
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Abstract
Evidence from this study suggests that investor sentiment and the peso problem play a significant role in explaining expectation errors, rejecting the unbiased expectation hypothesis (UEH). The deviation of the UEH for long-term rates is mainly attributable to expectation errors, whereas the deviation of short-term rates is tied to the term premium. We decompose expectation errors and find that irrationality is more apparent in crisis periods, and the rational component becomes an influential factor in tranquil periods.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Chen, Professor Cathy Yi-Hsuan |
| Authors: | Chen, C. Y.-H., Kuo, I.-D., and Chiang, T. C. |
| College/School: | College of Social Sciences > Adam Smith Business School > Accounting and Finance |
| Journal Name: | Journal of International Financial Markets, Institutions and Money |
| Publisher: | Elsevier BV |
| ISSN: | 1042-4431 |
| ISSN (Online): | 1873-0612 |
| Published Online: | 28 February 2014 |
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