Forecasting Spot Interest Rate Volatility

54 Pages Posted: 27 Mar 2000

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: December 1999

Abstract

This paper compares the in-sample and out-of-sample forecasting performance of models of the spot interest rate volatility using French and Germany short-term interest rates, 1981-1997. For a one-week horizon, the volatility forecasts evaluation shows that the model with the best fit does not have the highest forecasting power. The out-of-sample evidence supports that models with only news effect have similar forecasting power and effciency to models with mixed level and news effect, which have the best fit. Also, sample variance forecasts calculated using exponentially declining weights present forecasting power and effciency similar to the best volatility models.

Keywords: Interest rates, Stochastic volatility, GARCH, Forecasting.

JEL Classification: C52, C53, G12, E43

Suggested Citation

Ferreira, Miguel Almeida, Forecasting Spot Interest Rate Volatility (December 1999). EFA 2000 Meetings Paper No. 0095. Available at SSRN: https://ssrn.com/abstract=211188 or http://dx.doi.org/10.2139/ssrn.211188

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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