Forecasting the yield curve: A statistical model with market survey data

Forecasting the yield curve: A statistical model with market survey data

In this paper we propose a statistical model to forecast the yield curve, using two major sources of information: data from a market survey and the forward rate risk premium. We apply the model to forecast the Brazilian yield curve six months ahead and compare the results with the well-known model o...

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Bibliographic Details
Published in:International review of financial analysis Vol. 19; no. 2; pp. 108 - 112
Main Authors: Leite, André Luís, Filho, Romeu Braz Pereira Gomes, Vicente, José Valentim Machado
Format: Journal Article
Language:English
Published: Greenwich Elsevier Inc 01-03-2010
Elsevier
Elsevier Science Ltd
Series:International Review of Financial Analysis
Subjects:
Forecasting techniques
Market surveys
Random walk theory
Risk premium
Risk premiums
Statistical methods
Studies
Yield
Yield curve forecasting
Yield curve forecasting Risk premium Market surveys
Brazil
Risk premium
C5
G1
Market surveys
Yield curve forecasting
E4
Online Access:Get full text
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Description
Summary:In this paper we propose a statistical model to forecast the yield curve, using two major sources of information: data from a market survey and the forward rate risk premium. We apply the model to forecast the Brazilian yield curve six months ahead and compare the results with the well-known model of Diebold and Li (2006), a random walk process and the predictions based on the forward rate. The proposed model produces accurate forecasts and outperforms all the competitor models in terms of root mean square error (RMSE).
ISSN:1057-5219
1873-8079
DOI:10.1016/j.irfa.2010.02.001