An empirical analysis of term premiums using significance tests for stochastic dominance

The economic significance of term premiums in real returns on US Treasury Bills is examined using recently developed tests for first- and second-order stochastic dominance. The tests place only general restrictions on the preferences of individuals and on the distribution of returns. The results indicate that the two-month real return is preferred to the one-month real return based on both dominance criteria. Other term premiums do not appear to be economically significant.