We provide a formal test of the liquidity preference hypothesis (LPH), that is, the monotonicity of ex ante term premiums, using nonparametric estimates that do not require a structural model for conditional expected returns. Although the point estimates of the term premiums are consistent with...

The development of asset pricing models that rely on instrumental variables together with the increased availability of easily accessible economic time-series have renewed interest in predicting security returns. Evaluating the significance of these new research findings, however, is no easy...