EconPapers    
Economics at your fingertips  
 

The incremental information in the yield curve about future interest rate risk

Bent Jesper Christensen (), Mads Markvart Kjær () and Bezirgen Veliyev ()
Additional contact information
Mads Markvart Kjær: Aarhus University and CREATES, Postal: Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Bezirgen Veliyev: Aarhus University and CREATES and the Danish Finance Institute, Postal: Fuglesangs Allé 4, 8210 Aarhus V, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Using high-frequency intraday futures prices to measure yield volatility at selected maturities, we find that daily yield curves carry incremental information about future interest rate risk at the long end, relative to that contained in the time series of historical volatilities. Some of the information in the yield curves is not captured by standard affine models. At the short end, time series based forecasts outperform yield curve based forecasts. Both provide utility to a risk averse investor in longerterm instruments, not in short, relative to a random walk. Our results point to the existence of an unspanned volatility factor.

Keywords: Term structure models; Volatility; Forecasting; Kalman filtering; Yield curve (search for similar items in EconPapers)
JEL-codes: C58 E43 G12 (search for similar items in EconPapers)
Pages: 75
Date: 2021-07-01
New Economics Papers: this item is included in nep-for, nep-mac, nep-ore, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
ftp://ftp.econ.au.dk/creates/rp/21/rp21_11.pdf (application/pdf)

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:aah:create:2021-11

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().

 
Page updated 2021-10-13
Handle: RePEc:aah:create:2021-11