Estimating the Term Structure of Government Securities in Turkey

This paper uses statistical techniques to estimate monthly yield curves in Turkey using secondary government securities data from 1992 to 2004. We use both the spline based method of McCulloch and the parsimonious model of Nelson-Siegel to estimate monthly yield curves. Instead of using end-of-month values, which is a common practice in the previous empirical studies, we construct the data set by calculating the monthly volume weighted average of price and maturity. We use both in-sample and out-of-sample analysis to compare McCulloch and Nelson-Siegel methods. We find evidence that that McCulloch method has superior in-sample properties, whereas Nelson-Siegel method has superior out-of-sample properties.