An error correction factor model of term structure slopes in international swaps markets
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 Correc...
| Autores: | , |
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| Tipo de recurso: | informe técnico |
| Fecha de publicación: | 2002 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | inglés |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/64512 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/64512 |
| Access Level: | acceso abierto |
| Palabra clave: | E37 E43 Factor models Term structure of interest rates Principal components Swap markets IRS Mercados bursátiles y financieros |
| Sumario: | 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. |
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