A re-examination of the empirical performance of the Longstaff and Schwartz two-factor term structure model using real yield data

Treepongkaruna, Sirimon and Faff, Robert (2012) A re-examination of the empirical performance of the Longstaff and Schwartz two-factor term structure model using real yield data. Australian Journal of Management, 38 2: 333-352. doi:10.1177/0312896212443691


Author Treepongkaruna, Sirimon
Faff, Robert
Title A re-examination of the empirical performance of the Longstaff and Schwartz two-factor term structure model using real yield data
Journal name Australian Journal of Management   Check publisher's open access policy
ISSN 0312-8962
1327-2020
Publication date 2012
Sub-type Article (original research)
DOI 10.1177/0312896212443691
Volume 38
Issue 2
Start page 333
End page 352
Total pages 20
Place of publication London, United Kingdom
Publisher Sage
Collection year 2013
Language eng
Abstract In this study, we apply the Longstaff and Schwartz (1992) two-factor term structure model to real yields across eight countries. As such, we improve on many prior studies that have inappropriately tested this formulation using nominal yield data. We use the generalized method of moments to test the cross-sectional restrictions imposed by the Longstaff and Schwartz model, as well as the Cox–Ingersoll–Ross one-factor model. Further, we compare the forecasting ability from both models. Our findings support the superiority of the two-factor model. We confirm general reliability of prior research in this area, despite the unfortunate reliance on nominal data in such earlier tests.
Keyword Longstaff–Schwartz two-factor model
Multi-country test
Real yield data
Term structure
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ
Additional Notes Published online: 3 May 2012.

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2013 Collection
UQ Business School Publications
 
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Created: Thu, 08 Nov 2012, 14:56:43 EST by Karen Morgan on behalf of UQ Business School