The Behaviour of Certificate of Deposit Rates in the UK.

Using a number of maturities of up to one year and weekly high quality data on U.K. certificate of deposit rates, 1975-92, the authors provide a variety of tests of the expectations hypothesis of the term structure. Their results appear to give more support to the expectations hypothesis than do earlier studies, which often use longer maturities and data of a lower frequency on coupon paying bonds and yield data on 'bundles of bonds.' If one is willing to assume that noise traders predominate in the bond market at very short horizons, the authors can provide some insights into empirical results found in the literature. Copyright 1996 by Royal Economic Society.