Term Structure Modeling and Forecasting of Government Bond Yields : Does Macroeconomic Factors Imply Better Out-of-Sample Forecasts?
Accurate modeling and precise estimation of the term structure of interest rate are of crucial importance in many areas of finance and macroeconomics as it is the most important factor in the capital market and probably the economy. This study compares the in-sample fit and out-of-sample forecast accuracy of the CIR and Nelson-Siegel models. For the in-sample fit, there is a significant lack of information on the short-term CIR model. The CIR model should also be considered too poor to describe the term structure in a simulation based context. It generates a downward slope average yield curve. Contrary to CIR model, Nelson-Siegel model is not only compatible to fit attractively the yield curve but also accurately forecast the future yield for various maturities. Furthermore, the non-linear version of the Nelson-Siegel model outperforms the linearized one. In a simulation based context the Nelson-Siegel model is capable to replicate most of the stylized facts of the Japanese market yield curve. Therefore, it turns out that the Nelson-Siegel model (non-linear version) could be a good candidate among various alternatives to study the evolution of the yield curve in Japanese market.
|Date of creation:||Oct 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.econ.tohoku.ac.jp/econ/english/index.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-92.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
- Wali Ullah & Yoshihiko Tsukuda & Yasumasa Matsuda, 2012. "Term Structure Forecasting of Government Bond Yields with Latent and Macroeconomic Factors: Does Macroeconomic Factors Imply Better Out-of-Sample Forecasts?," TERG Discussion Papers 287, Graduate School of Economics and Management, Tohoku University.
- de Jong, Frank, 1999.
"Time-series and Cross-section Information in Affine Term Structure Models,"
CEPR Discussion Papers
2065, C.E.P.R. Discussion Papers.
- de Jong, Frank, 2000. "Time Series and Cross-Section Information in Affine Term-Structure Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(3), pages 300-314, July.
- Diebold, Francis X. & Li, Canlin, 2003.
"Forecasting the term structure of government bond yields,"
CFS Working Paper Series
2004/09, Center for Financial Studies (CFS).
- Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
- Francis X. Diebold & Canlin Li, 2003. "Forecasting the Term Structure of Government Bond Yields," NBER Working Papers 10048, National Bureau of Economic Research, Inc.
- Francis X. Diebold & Canlin Li, 2002. "Forecasting the Term Structure of Government Bond Yields," Center for Financial Institutions Working Papers 02-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Fama, Eugene F & Bliss, Robert R, 1987. "The Information in Long-Maturity Forward Rates," American Economic Review, American Economic Association, vol. 77(4), pages 680-92, September.
- Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
- Vasicek, Oldrich A & Fong, H Gifford, 1982. " Term Structure Modeling Using Exponential Splines," Journal of Finance, American Finance Association, vol. 37(2), pages 339-48, May.
- repec:dgr:uvatin:20070043 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:toh:tergaa:304. 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: (Tohoku University Library)
If references are entirely missing, you can add them using this form.