Empirically Confronting Stochastic Singularity: An Application to the Cox, Ingersoll, and Ross Model
We use encompassing regressions to evaluate interest rate forecasts along the yield curve over the period 1989 through 2005. Inputs to the encompassing regression include the forecast from one- and two-factor Cox, Ingersoll, and Ross (CIR) modelsobtained by estimating the model without adding pricing errors, the slope of the yield curve, and the change in Fed target rates. At the short end, we also include the forward rate and forecasts derived from popular non-parametric models. This empirical design has three advantages. First, by estimating the model without an error term we maintain the stochastic singularity common to all no-arbitrage models. Second, rather than accept or reject the models cross-sectional restrictions, we evaluate if the model contains any useful information about yield dynamics. Third, we restrict our attention to a time period of transparent Federal Reserve policy.
Testing Models of Arbitrage Forecasting Interest Rates
Christopher Lamoureux Kenneth Roskelley
Finance Department University of Arizona P.O.Box 210108 Tucson, AZ 85721 United States of America
国际会议
成都
英文
1-37
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）