The expectations hypothesis: New hope or illusory support?

► Our findings contradict recent support for the expectations hypothesis. ► Survey data distinguishes between time varying term premia and expectation errors. ► As in Fama (2006), market expectations adjust slowly to lower interest rates. ► Post 1980s, expectational errors off-set term premia in conventional tests. ► This reverses the reinforcing pattern found in Froot (1989).