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Factor-GARCH Modeling of the Treasury Term Structure

  • Christopher F. Baum
  • Basma Bekdache
Part of the Advances in Computational Economics book series (AICE, volume 6)

Abstract

In this paper, we test the multivariate model of securities’ excess returns formulated by Engle et al. (1990) on an expanded set of maturities. By applying their methodology to the entire Treasury term structure, we consider the applicability of a parsimonious common factor approach to the dynamics of short-, medium-, and long-term interest rates. We extend their methodology to incorporate asymmetric GARCH representations, in which the slope of the yield curve (and its sign) affects the evolution of the conditional variance of excess returns in fixed-income and equity markets. We find this approach quite successful in explaining the comovements of excess returns on the spectrum of Treasury issues for the 1962–1992 period.

Keywords

Term Structure Conditional Variance Yield Curve Excess Return Asset Return 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media Dordrecht 1997

Authors and Affiliations

  • Christopher F. Baum
  • Basma Bekdache

There are no affiliations available

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