Modeling fixed income excess returns
AbstractExcess returns earned in fixed-income markets have been modeled using the ARCH-M model of Engle et al. and its variants. We investigate whether the empirical evidence obtained from an ARCH-M type model is sensitive to the definition of the holding period (ranging from 5 days to 90 days) or to the choice of data used to compute excess returns (coupon or zero-coupon bonds). There is robust support for the inclusion of a term spread in a model of excess returns, while the significance of the in-mean term depends on characteristics of the underlying data.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 409.
Length: 33 pages
Date of creation: 26 Jun 1998
Date of revision: 14 Apr 2000
Note: This paper was previously titled "Conditional heteroskedasticity models of excess returns: How robust are the results?"
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GARCH models; excess returns; term premium;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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