Journal of Risk Model Validation
ISSN:
1753-9579 (print)
1753-9587 (online)
Editor-in-chief: Steve Satchell

Validation of term structure forecasts with factor models
Alexander B. Matthies
Abstract
ABSTRACT
The predictive content of dynamic factor models in term structure modeling is evaluated and validated. Under a purely statistical data-driven approach, different sets of variables, estimation and forecasting methods are compared. In this way, central assumptions of standard term structure factor models are tested. We find that the inclusion of macroeconomic variables is useful to improve forecasts. Furthermore, a combination of static representation for factor estimation and autoregressive factor forecasts produces superior forecasts. These results confirm the statistical assumptions of term structure models made in prior research.
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Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
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