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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- Robert F. Engle & Victor Ng & Michael Rothschild, 1988. "Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills," NBER Technical Working Papers 0065, National Bureau of Economic Research, Inc.
- 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.
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- Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December. Full references (including those not matched with items on IDEAS)
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