Period Hyphothesis

A common problem with using the expectations theory is that it sometimes overestimates future short-term rates, making it easy for investors to end up with an inaccurate prediction of a bond’s yield curve.

Another limitation of the theory is that many factors impact short-term and long-term bond yields.

It describes in concrete (rather than theoretical) terms what you expect will happen in your study. Sometimes a study is designed to be exploratory (see inductive research). Let's say that you predict that there will be a relationship between two variables in your study.

There is no formal hypothesis, and perhaps the purpose of the study is to explore some area more thoroughly in order to develop some specific hypothesis or prediction that can be tested in future research. The way we would formally set up the hypothesis test is to formulate two hypothesis statements, one that describes your prediction and one that describes all the other possible outcomes with respect to the hypothesized relationship.

If the investor chooses to invest in a one-year bond at 18% the bond yield for the following year’s bond would need to increase to 22% for this investment to be advantageous.

Investors should be aware that the expectations theory is not always a reliable tool.

The alternative hypothesis -- your prediction that the program will decrease absenteeism -- is shown there.

The null must account for the other two possible conditions: no difference, or an increase in absenteeism.

The Federal Reserve adjusts interest rates up or down, which impacts bond yields including short-term bonds.

However, long-term yields might not be as impacted because many other factors impact long-term yields including inflation and economic growth expectations.


Comments Period Hyphothesis

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