Time-Varying Volatility and the Dynamic Behavior of the Term Structure
In this paper, the authors consider a framework in which the cross-sectional and time-series behavior of the yield curve can be studied simultaneously. They examine the relationship between the yield curve and the time-varying conditional volatility of the Treasury bill market. The authors demonstrate that different shaped yield curves can result given different combinations of volatility and expectations about future spot rates. Moreover, adjusting the forward rate for the volatility related forward premium can improve its performance as a predictor for the future spot rate. Copyright 1993 by Ohio State University Press.
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Volume (Year): 25 (1993)
Issue (Month): 3 (August)
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- Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
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- McCulloch, J Huston, 1975. "An Estimate of the Liquidity Premium," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 95-119, February.
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- Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
- Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October. Full references (including those not matched with items on IDEAS)
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