This paper investigates the long-run equilibrium implications of the Expectations Hypothesis of the term structure on different maturities of high-grade yen Eurobonds and Japanese Government Bonds (JGBs) using the Canonical Cointegrating Regression (CCR) technique developed by [Econometrica 60 (1992) 119]. Consistent with the Expectations Hypothesis, there is some evidence of long-run equilibrium relationship between JGBs and high-grade yen Eurobonds. Furthermore, the most liquid, long-term JGBs tend to drive the yen Eurobond term structure, with short-term yields adjusting to movements in the long-term yields.
- Canonical cointegrating regression
- Expectations hypothesis
- Japanese yen Eurobonds
- Long-run relationship