Template-type: ReDIF-Paper 1.0
Author-Name: Pilar Abad
Author-Workplace-Name: Departamento de Economía Aplicada. Universidad de Vigo
Author-Name: Alfonso Novales 
Author-Email: anovales@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/novales-cinca,-alfonso
Author-Person: pno7
Author-Workplace-Name: Departamento de Economía Cuantitativa. Universidad Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Title: The Forecasting Ability of Factor Models of the Term Structure of IRS Markets
Abstract: Using estimated principal components as factors, three-factors models are shown to produce forecasts 
	comparable to those of autoregressive models for 2 to 10 year zaero coupon interest rates IRS markets 
	both, for short- and medium- term forecasting horizons. Evidence is provided for the Deutsche mark, 
	Spanish peseta, Japanese yen and US Dollar. Forecast from factor models are also shown to preserve the 
	correlation matrix of interest rates across a given term structure, an important proprerty regarding risk 
	management. The result is quite striking, because factor models are purely static, and forecasts for the 
	factors must be obtained in advance of interest rate forecast.factor models
Classification-JEL: E37, E43
Keywords: Factor models, Term structure of interest rates, Principal components, Swap markets, IRS
Length: 25 pages
Creation-Date: 2002
File-URL: https://eprints.ucm.es/id/eprint/7680/1/0221.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0221