Forecasting the term structure of interest rates for Turkey: a factor analysis approach

We perform factor analysis on monthly yield curves estimated by Nelson-Siegel model using the Turkish secondary government securities market data. Monthly yield curves are characterized by three factors which are estimated using nominal volume-weighted average monthly zero-coupon yields. According t...

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Bibliographic Details
Published inApplied financial economics Vol. 17; no. 1; pp. 77 - 85
Main Authors Emre Alper, C., Kazimov, K., Akdemir, A.
Format Journal Article
LanguageEnglish
Published London Routledge 01.01.2007
Taylor and Francis Journals
Routledge, Taylor & Francis Group
SeriesApplied Financial Economics
Subjects
Discriminant analysis
Economic analysis
Factor analysis
Financial research
Forecasts
GARCH models
Interest rates
Random walk theory
Secondary markets
Securities issues
Studies
Term structure
Turkey
Yield
Turkey
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Summary:We perform factor analysis on monthly yield curves estimated by Nelson-Siegel model using the Turkish secondary government securities market data. Monthly yield curves are characterized by three factors which are estimated using nominal volume-weighted average monthly zero-coupon yields. According to the loadings of each factor, we label the factors as level, slope and curvature. Next, we forecast yield curves using AR-GARCH and random walk processes and compare their relative performance. Our results indicate that the three factor model has high explanatory power and that the AR-GARCH specification has superior forecasting power for Turkey.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0960-3107
1466-4305
DOI:10.1080/09603100600606156