Yield Curve as a Cointegrated System: Evidence from Australian Treasury Securities
|Date of publication:||March 1994|
|Working paper number:||35|
This paper examines the structure of yield on Australian Treasury securities ranging in maturities from thirteen weeks to fifteen years using unit roots tests and cointegration tests. There is strong evidence to suggest that the six treasury securities considered, are cointegrated irrespective of which one is selected as the dependent variable in cointegration tests. Granger representation theorem is then applied to identify an error-correction model in forecasting Treasury security yield is compared with that of an augmented vector autoregression model (VAR). The forecast by the error-correction model shows 35% improvement in terms of root mean squared error (RMSE) relative to the VAR model.
|Paper:||Download (Format: PDF, Size: 1.1 Mb)|
Caldeira, J. F. and Portugal, M. S., 2010, "Estratégia Long-Short, Neutra ao Mercado, e Index Tracking Baseadas em Portfólios Cointegrados", Revista Brasileira de Finanças, 8(4), 469-504
Guest, R. and McLean, A., 1998, "New Evidence on the Expectations Theory of the Term Structure of Australian Commonwealth Government Treasury Yields", Applied Financial Economics, 8(1), 81-87.
Suardi, S., "Nonstationarity, Cointegration and Structural Breaks in the Australian Term Structure of Interest Rates", Applied Economics, 42(22), 2865-2879.