Reconstructing the yield curve

Yan Liu and Jing Cynthia Wu

Journal of Financial Economics, 2021, vol. 142, issue 3, 1395-1425

Abstract: The constant maturity zero-coupon yield curve for the US Treasuries is one of the most studied datasets. We construct a new yield curve using a non-parametric kernel-smoothing method with a novel adaptive bandwidth specifically designed to fit the Treasury yields. Our curve is globally smooth while still capturing important local variation. Economically, we show that applying our data leads to different conclusions from using the leading alternative data of Gürkaynak et al. (2007) (GSW) when we repeat two popular studies of Cochrane and Piazzesi (2005) and Giglio and Kelly (2018). Statistically, we show our dataset preserves information in the raw data and has much smaller pricing errors than GSW. Our new yield curve is maintained and updated online, complemented by bandwidths that summarize information content in the raw data.

Keywords: Yield curve; Term structure of interest rates; Return forecasting regressions; Excess volatility; Non-parametric method (search for similar items in EconPapers)
JEL-codes: C14 E43 G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Reconstructing the Yield Curve (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:142:y:2021:i:3:p:1395-1425

DOI: 10.1016/j.jfineco.2021.05.059

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