Time-varying risk aversion and forecastability of the US term structure of interest rates

Elie Bouri (), Rangan Gupta, Anandamayee Majumdar and Sowmya Subramaniam

Finance Research Letters, 2021, vol. 42, issue C

Abstract: We analyse the out-of-sample forecasting ability of a time-varying metric of risk aversion for the entire term structure of US Treasury securities as reflected by the three latent factors, level, slope and curvature. Daily data cover the out-of-sample period 22nd June 1988 to 3rd September 2020 within a quantiles-based framework. The results show statistically significant forecasting gains emanating from the inclusion of risk aversion for the tails of the conditional distributions of the quantiles-based models of the level, slope and curvature factors. The forecasting gains are shown in lower mean squared forecast errors at horizons of one-day, one-week, and one-month-ahead.

Keywords: Yield curve factors; Risk aversion; Out-of-sample forecasts (search for similar items in EconPapers)
JEL-codes: C22 C53 E43 G12 G17 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612321000052
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Time-Varying Risk Aversion and Forecastability of the US Term Structure of Interest Rates (2020)
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: https://EconPapers.repec.org/RePEc:eee:finlet:v:42:y:2021:i:c:s1544612321000052

DOI: 10.1016/j.frl.2021.101924

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().