Is Nonlinear Drift Implied by the Short End of the Term Structure?

Hideyuki Takamizawa

The Review of Financial Studies, 2008, vol. 21, issue 1, 311-346

Abstract: Nonlinear drift models of the short rate are estimated using data on the short end of the term structure, where the cross-sectional relation is obtained by an analytical approximation. The findings reveal that (i) nonlinear physical drift is not implied unless it is strongly affected by cross-sectional dimensions of the data; (ii) nonlinear risk-neutral drift that allows for fast mean reversion for high rates is desirable to explain and predict observed patterns of yield spreads; and (iii) for higher frequency data from which transitory shocks are removed, (ii) still remains valid although the nonlinearity is somewhat reduced. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhm072 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Is Nonlinear Drift Implied by the Short-End of the Term Structure? (2006)
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:oup:rfinst:v:21:y:2008:i:1:p:311-346

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press (joanna.bergh@oup.com).