Estimation Of Continuous-Time Models For Stock Returns And Interest Rates
AbstractEfficient Method of Moments is used to estimate and test continuous-time diffusion models for stock returns and interest rates. For stock returns, a four-state, two-factor diffusion with one state observed can account for the dynamics of the daily return onthe S P Composite Index, 1927 1987. This contrasts with results indicating that discrete-time, stochastic volatility models cannot explain these dynamics. For interest rates, a trivariate Yield-Factor Model is estimated from weekly, 1962 1995, Treasury rates. The Yield-Factor Model is sharply rejected, although extensions permitting convexities in the local variance come closer to fitting the data.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 1 (1997)
Issue (Month): 01 (January)
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Other versions of this item:
- Tauchen, George E. & Gallant, A. Ronald, 1995. "Estimation of Continuous Time Models for Stock Returns and Interest Rates," Working Papers 95-53, Duke University, Department of Economics.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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