Pricing the term structure with linear regressions
Tobias Adrian (),
Richard Crump () and
Emanuel Moench ()
Journal of Financial Economics, 2013, vol. 110, issue 1, 110-138
We show how to price the time series and cross section of the term structure of interest rates using a three-step linear regression approach. Our method allows computationally fast estimation of term structure models with a large number of pricing factors. We present specification tests favoring a model using five principal components of yields as factors. We demonstrate that this model outperforms the Cochrane and Piazzesi (2008) four-factor specification in out-of-sample exercises but generates similar in-sample term premium dynamics. Our regression approach can also incorporate unspanned factors and allows estimation of term structure models without observing a zero-coupon yield curve.
Keywords: Term structure of interest rates; Fama-MacBeth regressions; Dynamic asset pricing estimation; Empirical finance (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (97) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Pricing the term structure with linear regressions (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:110:y:2013:i:1:p:110-138
Access Statistics for this article
Journal of Financial Economics is currently edited by G. William Schwert
More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().