THE BEHAVIOR OF CERTIFICATE OF DEPOSIT RATES IN THE UK

Using a number of maturities of up to one year and weekly high quality data on UK, CD rates, 1975-92, we provide a variety of tests of the e xpectations hypothesis (EH) of the term structure. Our results appear to give more support to the EH than do earlier studies, which often us e longer maturities and data of a lower frequency on coupon paying bon ds and yield data on 'bundles of bonds'. If one is willing to assume t hat noise traders predominate in the bond market at very short horizon s, we can provide some insights into empirical results, found in the l iterature.