Rational expectation hypothesis: empirical evidence from government debt market in India

摘要: This article tests the validity of rational expectation hypothesis (REH) for government securities market in India period Jul-97 through Feb-04. REH states that return on longer-term instrument is equal to expected average short-term instruments which occur over life long-term instrument. The theory has been empirically tested by a large number researchers, mostly developed countries and findings are often controversial. study establishing cointegrating relationships consisting short-term, medium-term instruments. It used zero coupon interest rates one month, three months, six years ten maturities. finds four suggesting India. indeed ensures smooth functioning debt gives an indication yield curve should serve as indicator monetary policymakers manage inflation influence aggregate demand economy.