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Empirical Analysis of the Yield Curve: The Information in the Data Viewed through the Window of Cox, Ingersoll, and Ross
Author(s) -
Lamoureux Christopher G.,
Witte H. Douglas
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00467
Subject(s) - econometrics , series (stratigraphy) , bayesian probability , yield curve , exploit , factor analysis , estimation , statistics , computer science , time series , economics , mathematics , interest rate , finance , paleontology , computer security , management , biology
This paper uses recent advances in Bayesian estimation methods to exploit fully and efficiently the time‐series and cross‐sectional empirical restrictions of the Cox, Ingersoll, and Ross model of the term structure. We examine the extent to which the cross‐sectional data (five different instruments) provide information about the model. We find that the time‐series restrictions of the two‐factor model are generally consistent with the data. However, the model's cross‐sectional restrictions are not. We show that adding a third factor produces a significant statistical improvement, but causes the average time‐series fit to the yields themselves to deteriorate.