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Modelling And Forecasting Short-Term Interest Rate Volatility: A Semiparametric Approach, Aijun Hou, Sandy Suardi
Modelling And Forecasting Short-Term Interest Rate Volatility: A Semiparametric Approach, Aijun Hou, Sandy Suardi
Sandy Suardi
This paper employs a semiparametric procedure to estimate the diffusion process of short-term interest rates. The Monte Carlo study shows that the semiparametric approach produces more accurate volatility estimates than models that accommodate asymmetry, level effect and serial dependence in the conditional variance. Moreover, the semiparametric approach yields robust volatility estimates even if the short rate drift function and the underlying innovation distribution are misspecified. Empirical investigation with the U.S. three-month Treasury bill rates suggests that the semiparametric procedure produces superior in-sample and out-of-sample forecast of short rate changes volatility compared with the widely used single-factor diffusion models. This forecast …
Predicting Short-Term Interest Rates Using Bayesian Model Averaging: Evidence From Weekly And High Frequency Data, Chew Lian Chua, Sandy Suardi, Sarantis Tsiaplias
Predicting Short-Term Interest Rates Using Bayesian Model Averaging: Evidence From Weekly And High Frequency Data, Chew Lian Chua, Sandy Suardi, Sarantis Tsiaplias
Sandy Suardi
This paper examines the forecasting performance of Bayesian model averaging (BMA) for a set of single factor models of short-term interest rates. Using weekly and high frequency data for the one-month Eurodollar rate, BMA produces predictive likelihoods that are considerably better than those associated with the majority of the short-rate models, but marginally worse than those of the best model in each dataset. We also find that BMA forecasts based on recent predictive likelihoods are preferred to those based on the marginal likelihood of the entire dataset.
Nonstationarity, Cointegration And Structural Breaks In The Australian Term Structure Of Interest Rates, Sandy Suardi
Nonstationarity, Cointegration And Structural Breaks In The Australian Term Structure Of Interest Rates, Sandy Suardi
Sandy Suardi
This article examines the unit-root property of the Australian short- and long-term interest rates using unit-root tests that accommodate a single or two breaks under the null and/or alternative hypothesis. Two breaks in interest rates are found to coincide with the 1982/83 and 1990/91 recessions or the 1993 inflation targeting period. We further investigate the implications of these structural breaks on the cointegrating relationship implied by the single, linear expectations hypothesis of the term structure of interest rates. While there is evidence that the data are consistent with the expectations hypothesis at the shorter end of the term structure, breaks …