EMPIRICAL ASSESSMENT OF TERM STRUCTURE ESTIMATION METHODS: AN APPLICATION ON TURKISH BOND MARKET

Emre YOLDAŞ (Marmara University)

Empirical modeling of term structure is crucial for both macroeconomic policy and financial decision making processes. This study explores various methods of extracting the term structure of spot interest rates from bond price data. Methods developed by McCulloch (1971, 1975), Nelson and Siegel (1987) and Chambers et al (1984) are empiricaly assessed by using the daily Turkish bond market data between 1994-2002. Empirical results regarding the performance of alternative models based on pricing errors are evaluated by using various metrics. Main empirical model evalaution has been conducted by following Bliss (1997) which relies on examining whether there are systematic departures from the basic linear pricing rule implied by the fundamental theorem of asset pricing.