Biblioteca de la Universidad Complutense de Madrid

An error correction factor model of term structure slopes in international swaps markets

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Novales Cinca, Alfonso y Abad Romero, Pilar (2002) An error correction factor model of term structure slopes in international swaps markets. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 0222, 2002, ]

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URL Oficial: http://eprints.ucm.es/7681/




Resumen

The first two principal components in the vector of term structure slopes from IRS
markets in eight major currencies can be approximately identified as the slopes for the US dollar
and Deutsche mark. Each of the eight slopes considered is cointegrated with these two factors.
The implied Error Correction models can be very fruitful for short and medium term slope
forecasting for the eight currencies. This scheme achieves a drastic reduction of dimensionality,
since the eight slopes can be predicted using just univariate forecasts for the two factors. Adding
more factors to the model does not lead to a significant improvement in forecasting performance,
while forecasts obtained using just one factor are not as good as those from two-factor Error
Correction models.


Tipo de documento:Documento de trabajo o Informe técnico
Información Adicional:

JEL Classification: E37, E43

Palabras clave:Factor models, Term structure of interest rates, Principal components, Swap markets, IRS
Materias:Ciencias Sociales > Economía > Mercados bursátiles y financieros
Título de serie o colección:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volumen:2002
Número:0222
Código ID:7681
Referencias:

Abad, P., and Novales, A., 2002, A forecasting comparison of alternative models for term structure slopes in IRS markets, manuscript, Universidad Complutense, Madrid.

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Depositado:04 Mar 2008
Última Modificación:06 Feb 2014 07:55

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