Pricing the term structure with linear regressions

Tobias Adrian () and Emanuel Moench ()

No 340, Staff Reports from Federal Reserve Bank of New York

Abstract: We estimate the time series and cross section of bond returns by way of three-stage ordinary least squares, which we label dynamic Fama-MacBeth regressions. Our approach allows for estimation of models with a large number of pricing factors. Even though we do not impose yield cross-equation restrictions in the estimation, we show that our bond return regressions generate a term structure of interest rates with small yield errors when compared with commonly reported specifications. We uncover specifications that give rise to lower pricing errors than do commonly advocated specifications, both in- and out-of-sample. Efficiency can be obtained through the generalized method of moments (GMM) estimator.

Keywords: Interest rates; Econometric models; Regression analysis; Bonds; Rate of return (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2008
View list of references View citations in EconPapers

Downloads: (external link)
http://www.newyorkfed.org/research/staff_reports/sr340.html (text/html)
http://www.newyorkfed.org/research/staff_reports/sr340.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fednsr:340

Ordering information: This working paper can be ordered from
http://www.ny.frb.org/rmaghome/staff_rp/

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().