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Term structure estimation in the presence of autocorrelation

  • Juneja, Januj
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    This paper assesses the effects of autocorrelation on parameter estimates of affine term structure models (ATSM) when principal components analysis is used to extract factors. In contrast to recent studies, we design and run a Monte Carlo experiment that relies on the construction of a simulation design that is consistent with the data, rather than theory or observation, and find that parameter estimation from ATSM is precise in the presence of serial correlation in the measurement error term. Our findings show that parameter estimation of ATSM with principal component based factors is robust to autocorrelation misspecification.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1062940814000205
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    Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

    Volume (Year): 28 (2014)
    Issue (Month): C ()
    Pages: 119-129

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    Handle: RePEc:eee:ecofin:v:28:y:2014:i:c:p:119-129
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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