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Testing linearity in term structures

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Listed author(s):
  • Chiara Peroni

Abstract

This article uses robust nonparametric techniques to investigate both crosssectional and dynamic properties of affine models, a popular framework to analyse Term Structures (TSs) of interest rates. The analysis shows the strong nonlinearity in the relationship of yields to the US and UK short rate. The nonlinear pattern is concave in the state variable, and increasing with respect to the maturity, for both countries. Linear and nonlinear specifications are then compared by means of a formal statistical criterion, the Generalized Likelihood-Ratio (GLR) test statistics, which confirms evidence against the linear specification.

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File URL: http://hdl.handle.net/10.1080/09603107.2011.621882
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 22 (2012)
Issue (Month): 8 (April)
Pages: 651-666

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Handle: RePEc:taf:apfiec:v:22:y:2012:i:8:p:651-666
DOI: 10.1080/09603107.2011.621882
Contact details of provider: Web page: http://www.tandfonline.com/RAFE20

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Find related papers by JEL classification:
  • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
  • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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Cited by:

  1. Juneja, Januj, 2014. "Term structure estimation in the presence of autocorrelation," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 119-129.

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