An asset pricing approach to testing general term structure models

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avisTidsskriftartikelForskningpeer review

We develop a new empirical approach to term structure analysis that allows testing for time-varying risk premiums and arbitrage opportunities in models with both unobservable factors and factors identied as the innovations to observed macroeconomic variables. Factors may play double roles as both covariance-generating common shocks driving yields and determinants of market prices of risk in cross-sectional pricing. The evidence favors time-varying risk prices signicantly related to the second Stock-Watson principal component of macroeconomic variables and to changes in the
industrial production index. Our preferred specication includes these two observable and two unobservable factors, with the no-arbitrage condition imposed.
TidsskriftJournal of Financial Economics
StatusAccepteret/In press - 21 maj 2018

Se relationer på Aarhus Universitet Citationsformater

ID: 131956850