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

Bent Jesper Christensen, Mads Markvart Kjær () and Bezirgen Veliyev
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Mads Markvart Kjær: Aarhus University and CREATES, 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
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https://repec.econ.au.dk/repec/creates/rp/21/rp21_11.pdf (application/pdf)

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Journal Article: The incremental information in the yield curve about future interest rate risk (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2021-11

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