Variance-in-mean effects of the long forward-rate slope

Charlotte Christiansen

Applied Financial Economics, 2005, vol. 15, issue 11, 753-755

Abstract: This paper contains an empirical analysis of the dependence of the long forward-rate slope on the long-rate variance. The long forward-rate slope and the long rate are described by a bivariate GARCH-in-mean model. In accordance with theory, a negative long-rate variance-in-mean effect for the long forward-rate slope is documented. Thus, the greater the long-rate variance, the steeper the long forward-rate curve slopes downward (the long forward-rate slope is negative). The variance-in-mean effect is both statistically and economically significant.

Date: 2005
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DOI: 10.1080/09603100500166152

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