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Survey evidence on forecast accuracy of U.S. term spreads

  • Baghestani, Hamid
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    Successful portfolio management strategies partly require accurate forecasts of term spreads. Such forecasts may also be useful for policymaking since the yield curve may contain predictive information for economic growth. This study asks whether experts accurately predict term spreads. We show that the consensus forecasts from two separate panels, while superior to alternative benchmark forecasts, are free of systematic bias but unable to replicate the degree of variability in the actual change. Moreover, these forecasts are directionally accurate under symmetric loss, implying that they are of value to a market participant who assigns similar costs to incorrect upward and downward moves.

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    File URL: http://www.sciencedirect.com/science/article/B6W61-4VPM5JN-1/2/ad05d24ce63d64bc84e269002df31428
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    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 18 (2009)
    Issue (Month): 3 (August)
    Pages: 156-162

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    Handle: RePEc:eee:revfin:v:18:y:2009:i:3:p:156-162
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620170

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    1. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
    2. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
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    4. Yvon Fauvel & Alain Paquet & Christian Zimmermann, 1999. "A Survey on Interest Rate Forecasting," Cahiers de recherche CREFE / CREFE Working Papers 87, CREFE, Université du Québec à Montréal.
    5. Batchelor, Roy & Dua, Pami, 1991. "Blue Chip Rationality Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 692-705, November.
    6. Duarte, Agustin & Venetis, Ioannis A. & Paya, Ivan, 2005. "Predicting real growth and the probability of recession in the Euro area using the yield spread," International Journal of Forecasting, Elsevier, vol. 21(2), pages 261-277.
    7. Simon, David P, 1989. "The Rationality of Federal Funds Rate Expectations: Evidence from a Survey: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 388-93, August.
    8. Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
    9. Massimo Guidolin & Allison K. Rodean, 2008. "No volatility, no forecasting power for the term spread," Monetary Trends, Federal Reserve Bank of St. Louis, issue Apr.
    10. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
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