Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25259
Authors: 
Blaskowitz, Oliver J.
Herwartz, Helmut
Year of Publication: 
2008
Series/Report no.: 
SFB 649 discussion paper 2008,017
Abstract: 
In this paper we adopt a principal components analysis (PCA) to reduce the dimensionality of the term structure and employ autoregressive models (AR) to forecast principal components which, in turn, are used to forecast swap rates. Arguing in favor of structural variation, we propose data driven, adaptive model selection strategies based on the PCA/AR model. To evaluate ex-ante forecasting performance for particular rates, different forecast features such as mean squared errors, directional accuracy and big hit ability are considered. It turns out that relative to benchmark models, the adaptive approach offers additional forecast accuracy in terms of directional accuracy and big hit ability.
Subjects: 
Principal components
ex-ante forecasting
EURIBOR swap rates
term structure
directional accuracy
big hit ability
JEL: 
C32
C53
E43
G29
Document Type: 
Working Paper

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