TY  - JOUR
AB  - This paper estimates a Nelson-Siegel model under the state-space representation in order to circumvent the shortcomings of the conventional Nelson-Siegel model and evaluates the predictive ability of the estimated model. The results indicate that the estimated Nelson-Siegel time-varying three factors have close relations to their counterparts : level, slope and curvature and the inflection of the Korean yield curve is located around the maturity of 55-month. Meanwhile, each factor is found to have unit-root but differenced-factors do not show signs of unit-roots, hence proved I (1) series. In order to assess the efficacy of the estimated model, we compare the yield prediction from our model with several natural competitors : random walk, Fama-Bliss, and Cochrane-Piazzesi. With respect to out-of-sample performance, Fama-Bliss model proves to be the worst in term structure forecasts in Korea. The predictive performance differs between the random walk and the state-space Nelson-Siegel model depending on the forecast horizon lengths. At the shorter horizon, the state-space Nelson-Siegel model outperforms the random walk, but the table is turned in the longer horizon
VL  - 19
IS  - 3
SN  - 2713-6647
DO  - 10.1108/JDQS-03-2011-B0004
UR  - https://doi.org/10.1108/JDQS-03-2011-B0004
AU  - Song Joonhyuk
PY  - 2011
Y1  - 2011/01/01
TI  - Estimating and Forecasting a Term Structure of Interest Rates with State-Space Nelson-Siegel Model
T2  - Journal of Derivatives and Quantitative Studies
PB  - Emerald Publishing Limited
SP  - 309
EP  - 334
Y2  - 2024/04/27
ER  -