Parsimonious modeling and forecasting of corporate yield curve
AbstractThis paper investigates the sensitivity of out-of-sample forecasting performance over a span of different parameters of l in the dynamic Nelson-Siegel three-factor AR(1) model. First, we find that the ad hoc selection of l is not optimal. Second, we find a substantial difference in factor dynamics between investment-grade and speculative-grade corporate bonds from 1994:12 to 2006: 4. Third, we suggest that the three-factor model is sufficient to explain the main variations of corporate yield changes. Finally, the parsimonious Nelson-Siegel three-factor AR(1) model remains competitive in the out-of-sample forecasting of corporate yields. Copyright © 2008 John Wiley & Sons, Ltd.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.
Volume (Year): 28 (2009)
Issue (Month): 1 ()
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966
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- Eran Raviv, 2013. "Prediction Bias Correction for Dynamic Term Structure Models," Tinbergen Institute Discussion Papers 13-041/III, Tinbergen Institute.
- Yu, Wei-Choun & Zivot, Eric, 2011. "Forecasting the term structures of Treasury and corporate yields using dynamic Nelson-Siegel models," International Journal of Forecasting, Elsevier, vol. 27(2), pages 579-591, April.
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