The existing literature finds that information not captured by traditional term structure factors helps predict excess bond returns. When estimating no-arbitrage affine term structure models, aligning in-sample and out-of-sample objective functions results in term structure factors that capture...

We introduce a reduced-form term structure model with closed-form solutions for yields where the short rate and market prices of risk are nonlinear functions of Gaussian state variables. The nonlinear model with three factors matches the time-variation in expected excess returns and yield...

There is no consensus on whether macroeconomic fundamentals have any predictive power for bond risk premia, either unconditionally or conditionally over bond yields. Using Adaptive Group LASSO, a machine learning algorithm, we are able to construct a new, parsimonious macro variable that is...

The aim of this paper is to propose a new methodology that allows forecasting, through Vasicek and CIR models, of future expected interest rates based on rolling windows from observed financial market data. The novelty, apart from the use of those models not for pricing but for forecasting the...

Several papers decompose stock returns into cash flow and discount rate news to study equity market fluctuations. This paper develops and explores an alternative decomposition for stock returns based on the idea that equity volatility must come from variation in the present value of short- and...

This is the first study to analyze the yield curve control (YCC) regime initiated by the Bank of Japan (BOJ) in 2016. To impose yield caps, the BOJ makes its bond purchases endogenous to market yields through both fixed-amount and fixed-price (i.e., unlimited-amount) operations. Both long-term...

No-arbitrage dynamic term structure models (DTSMs) have regularly been used to estimate interest rate expectations and term premia, but are beset by empirical challenges. I propose augmenting DTSMs with overnight indexed swap (OIS) rates to better estimate the decomposition along the term...

The aim of this paper is to propose a new methodology that allows forecasting, through Vasicek and CIR models, of future expected interest rates (for each maturity) based on rolling windows from observed financial market data. The novelty, apart from the use of those models not for pricing but...

No-arbitrage dynamic term structure models (DTSMs) have regularly been used to estimate interest rate expectations and term premia, but are beset by an identification problem that results in inaccurate estimates. I propose the augmentation of DTSMs with overnight indexed swap (OIS) rates to...

Two novel models specify interest rates from factors other than time to demonstrate bond market expectations of riskless rates converge to the natural rate of interest.The first yield curve model is based upon risk rather than time. The riskless rate is the incremental yield for an infinitesimal...