Revisiting the shape of the yield curve: the effect of interest rate volatility
AbstractThis paper examines the relationship between interest-rate volatility and the shape of the yield curve. The yield curve is parsimoniously described by its level, slope, and curvature. The level, the slope and the curvature are analyzed within a trivariate heteroskedastic model, where the conditional short-rate volatility is included in the mean speciﬁcation. The slope and the curvature depend positively and signiﬁcantly on the short-rate volatility. The effect of the interest rate volatility is more pronounced for the curvature than for the slope. Differences between subperiods are explored, as are differences across the maturity spectrum.
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Bibliographic InfoPaper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Working Papers with number 02-3.
Length: 28 pages
Date of creation: 13 Mar 2002
Date of revision:
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More information through EDIRC
Multivariate GARCH-M; Short-Rate Volatility; Yield Curve Curvature; Yield Curve Shape; Yield Curve Slope;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-06-24 (All new papers)
- NEP-FIN-2002-06-24 (Finance)
- NEP-FMK-2002-06-24 (Financial Markets)
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