Forecasting the yield curve with linear factor models

Marco Matsumura, Ajax Moreira and José Vicente

International Review of Financial Analysis, 2011, vol. 20, issue 5, 237-243

Abstract: In this work we compare the interest rate forecasting performance of a broad class of linear models. The models are estimated through a MCMC procedure with data from the US and Brazilian markets. We show that a simple parametric specification has the best predictive power, but it does not outperform the random walk. We also find that macroeconomic variables and no-arbitrage conditions have little effect to improve the out-of-sample fit, while a financial variable (Stock Index) increases the forecasting accuracy.

Keywords: Yield curve forecasting; Macroeconomic variables; Affine models (search for similar items in EconPapers)
JEL-codes: C5 E4 G1 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:20:y:2011:i:5:p:237-243

DOI: 10.1016/j.irfa.2011.05.003

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