IDEAS home Printed from
   My bibliography  Save this paper

Bond Yield Predictability and Estimation of Affine Term Structure Models


  • Bovorn Vichiansin

    () (Economics University of Washington)


Recent studies by Dai and Singleton (2002), Duffee (2002), and Duarte (2004) show that affine term structure models that match the time variability of the expected returns of bond yields do not generate time variation in the volatility of interest rates. This failure indicates that affine models fail to match one stylized fact of the term structure of U.S. interest rates. However, in this paper I show that the empirical limitation can be solved by allowing a more flexible specification of the risk-premia. I find that the affine models perform poorly at short forecasting horizons, but perform very well at longer horizons. Some affine models produce more accurate out-of-sample forecast than the random walk and other benchmark models. My empirical work also shows that the Kalman filter has the ability to filter discrepancy in zero-coupon bond yields occurring from different choices of splines, whereas the factor inversion method does not. When applied to different spline techniques, the factor inversion method gives larger differences in in-sample and out-of-sample bond yield forecasts than the Kalman filter method. Thus, I recommend estimating affine models by the Kalman filter rather than the factor inversion

Suggested Citation

  • Bovorn Vichiansin, 2005. "Bond Yield Predictability and Estimation of Affine Term Structure Models," Computing in Economics and Finance 2005 390, Society for Computational Economics.
  • Handle: RePEc:sce:scecf5:390

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Term Structure of Interest rates; Affine Models; Kalman Filter;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf5:390. 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: (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.