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Forecasting the yield curve with linear factor models

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  • Matsumura, Marco
  • Moreira, Ajax
  • Vicente, José
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    Abstract

    In this work we compare the interest rate forecasting performance of a broad class of linear models. The models are estimated through a MCMC procedure with data from the US and Brazilian markets. We show that a simple parametric specification has the best predictive power, but it does not outperform the random walk. We also find that macroeconomic variables and no-arbitrage conditions have little effect to improve the out-of-sample fit, while a financial variable (Stock Index) increases the forecasting accuracy.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1057521911000500
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 20 (2011)
    Issue (Month): 5 ()
    Pages: 237-243

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    Handle: RePEc:eee:finana:v:20:y:2011:i:5:p:237-243

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Yield curve forecasting; Macroeconomic variables; Affine models;

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    Cited by:
    1. Fernandez-Perez, Adrian & Fernández-Rodríguez, Fernando & Sosvilla-Rivero, Simón, 2014. "The term structure of interest rates as predictor of stock returns: Evidence for the IBEX 35 during a bear market," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 21-33.

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