Parsimonious modeling and forecasting of corporate yield curve
This paper investigates the sensitivity of out-of-sample forecasting performance over a span of different parameters of l in the dynamic Nelson-Siegel three-factor AR(1) model. First, we find that the ad hoc selection of l is not optimal. Second, we find a substantial difference in factor dynamics between investment-grade and speculative-grade corporate bonds from 1994:12 to 2006: 4. Third, we suggest that the three-factor model is sufficient to explain the main variations of corporate yield changes. Finally, the parsimonious Nelson-Siegel three-factor AR(1) model remains competitive in the out-of-sample forecasting of corporate yields. Copyright © 2008 John Wiley & Sons, Ltd.
Volume (Year): 28 (2009)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966|
When requesting a correction, please mention this item's handle: RePEc:jof:jforec:v:28:y:2009:i:1:p:73-88. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.