Boudoukh, Jacob, Matthew Richardson, Tom Smith, and Robert F. Whitelaw, "Ex Ante Bond Returns and the Liquidity Preference Hypothesis", Journal of Finance, Vol. 54, No. 3, (June 1999), pp. 1153-1167.

Abstract: 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 previous conclusions in the literature regarding violations of the LPH, the test statistics are generally insignificant, even when powerful conditioning information is used. These results illustrate the importance of correctly accounting for correlations across maturities and of formally testing the inequality restrictions implied by the LPH.

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