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Document Type

Article Restricted

Publication Date

5-2014

Journal Title

Journal of International Financial Markets, Institutions and Money

Volume Number

30

First Page

172

Last Page

190

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.

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