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The Central Tendency: A Second Factor in Bond Yields / Pierluigi Balduzzi, Sanjiv Ranjan Das, Silverio Foresi.
- Format:
- Book
- Author/Creator:
- Balduzzi, Pierluigi.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w6325.
- NBER working paper series no. w6325
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- The Central Tendency
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1997.
- Summary:
- We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was constant. However, since longer-maturity bond prices incorporate information" about the central tendency, longer-maturity bond yields can be used to predict future short-term" rate movements. We develop a two-factor model of the term-structure which implies that a" linear combination of any two rates can be used as a proxy for the central tendency. Based on" this central-tendency proxy, we estimate a model of the one-month rate which performs better" than models which assume the central tendency to be constant.
- Notes:
- Print version record
- December 1997.
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