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An asset pricing approach to testing general term structure models

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An asset pricing approach to testing general term structure models. / Christensen, Bent Jesper; van der Wel, Michel.

I: Journal of Financial Economics, Bind 134, Nr. 1, 2019, s. 165-191.

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

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Christensen, Bent Jesper ; van der Wel, Michel. / An asset pricing approach to testing general term structure models. I: Journal of Financial Economics. 2019 ; Bind 134, Nr. 1. s. 165-191.

Bibtex

@article{938d4ed7f726405e996a9e803d634ed7,
title = "An asset pricing approach to testing general term structure models",
abstract = "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 theindustrial production index. Our preferred specication includes these two observable and two unobservable factors, with the no-arbitrage condition imposed.",
keywords = "Bond aging effect, Macroeconomic conditioning variables, Nonlinear drift restriction, Time-varying risk premiums, Yield curve model",
author = "Christensen, {Bent Jesper} and {van der Wel}, Michel",
year = "2019",
doi = "10.1016/j.jfineco.2019.03.010",
language = "English",
volume = "134",
pages = "165--191",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier BV",
number = "1",

}

RIS

TY - JOUR

T1 - An asset pricing approach to testing general term structure models

AU - Christensen, Bent Jesper

AU - van der Wel, Michel

PY - 2019

Y1 - 2019

N2 - 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 theindustrial production index. Our preferred specication includes these two observable and two unobservable factors, with the no-arbitrage condition imposed.

AB - 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 theindustrial production index. Our preferred specication includes these two observable and two unobservable factors, with the no-arbitrage condition imposed.

KW - Bond aging effect

KW - Macroeconomic conditioning variables

KW - Nonlinear drift restriction

KW - Time-varying risk premiums

KW - Yield curve model

UR - http://www.scopus.com/inward/record.url?scp=85064609930&partnerID=8YFLogxK

U2 - 10.1016/j.jfineco.2019.03.010

DO - 10.1016/j.jfineco.2019.03.010

M3 - Journal article

AN - SCOPUS:85064609930

VL - 134

SP - 165

EP - 191

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

IS - 1

ER -