Does Realized Volatility Help Bond Yield Density Prediction?
46 Pages Posted: 7 Nov 2013
There are 2 versions of this paper
Does Realized Volatility Help Bond Yield Density Prediction?
Does Realized Volatility Help Bond Yield Density Prediction?
Date Written: November 4, 2013
Abstract
This paper examines the importance of realized volatility in bond yield density prediction. We incorporate realized volatility into a Dynamic Nelson-Siegel (DNS) model with stochastic volatility and evaluate its predictive performance on US bond yield data. When compared to popular specifications in the DNS literature without realized volatility, we find that having this information improves density forecasting performance.
Keywords: Dynamic factor model, forecasting, stochastic volatility, term structure of interest rates
JEL Classification: C5, G1, E4
Suggested Citation: Suggested Citation