Premium
The dynamics of long forward rate term structures
Author(s) -
Luo Xingguo,
Zhang Jin E.
Publication year - 2010
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20447
Subject(s) - treasury , term (time) , forward rate , econometrics , economics , phenomenon , arbitrage , dynamics (music) , short rate , yield curve , sample (material) , mathematical economics , financial economics , mathematics , keynesian economics , interest rate , physics , monetary economics , geography , thermodynamics , archaeology , quantum mechanics , acoustics
Abstract In this article, we look at study the dynamics of forward rates with maturities longer than 14 years. We re‐document the phenomenon of the downward sloping long forward rate term structure using U.S. Treasury STRIPS data over the period 1988 to 2007. By calibrating Diebold F. X. and Li C.‐L.'s (2006) dynamic Nelson C. R. and Siegel A. F. (1987) and Christensen J. H. E., Diebold F. X., and Rudebusch G. D.'s (2007) arbitrage‐free Nelson‐Siegel models, we find that both models explain the empirical phenomenon very well. Out‐of‐sample comparison shows that imposing no‐arbitrage restriction indeed improves the forecasting performance. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 30:957–982, 2010