A1550
Title: Testing spanning in affine term structure models by least squares
Authors: Hiroyuki Kawakatsu - Dublin City University (Ireland) [presenting]
Abstract: The aim is to reconsider testing whether macroeconomic variables are spanned by the first few principal components of the yield curve. The proposed testing approach uses the linear regression estimates of the affine term structure model that incorporates no-arbitrage restrictions. Inference based on the asymptotic distribution under the Gaussian and i.i.d. assumption may be unreliable. A double bootstrap procedure that exploits the fast linear estimator is proposed that relaxes the Gaussian i.i.d. assumption. The performance of the proposed test is evaluated using simulations and U.S. monthly data.
