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Forecasting the yield curve with linear factor models

Listed author(s):
  • Matsumura, Marco
  • Moreira, Ajax
  • Vicente, José
Registered author(s):

    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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    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
    DOI: 10.1016/j.irfa.2011.05.003
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620166

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