Term Structure Fitting Models and Information Content: An Empirical Examination in Taiwanese Government Bond Market

Shih-Kuo Yeh () and Bing-Huei Lin ()
Additional contact information
Shih-Kuo Yeh: Department of Finance, National Chun Hsing University, 250 Kuo-Kuang Road, Taichung 402, Taiwan, ROC
Bing-Huei Lin: Department of Business Administration, National Taiwan University of Science and Technology, No. 43, Section 4, Keelung Road, Taipei 106, Taiwan, ROC

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2003, vol. 06, issue 03, 305-348

Abstract: In this study, we apply empirical methodologies, which are essentially curve fitting techniques, and use cross-sectional bond price data to estimate and analyze the Taiwanese government bond (TGB) term structure of interest rates. We choose two economic models: the Vasicek model and the CIR model, and one mathematical model: the B-spline approximation function, as the discount bond function to extract the term structure from market coupon bond prices. To assess the fitting performances and investigate the economic information content of the term structure fitting models, we compare the estimation errors and examine whether trading mis-priced bonds according the fitting model, can provide excess returns. The hypothesis is that the mathematical model can fit the term structure better than the economic models. But the economic models, which contain economic information, are able to explain the term structure dynamics. Thus the economic models can perform better in identifying mis-priced bonds and in predicting excess trading returns, than the mathematical model. Using the methodologies in this study, we can investigate the term structure fitting problems and look at the economic information content of the term structure fitting models.

Keywords: Term structure of interest rates; B-spline approximation; diffusion process; mean-reversion (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091503001110
Access to full text is restricted to subscribers

Related works:
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:wsi:rpbfmp:v:06:y:2003:i:03:n:s0219091503001110

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091503001110

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().