Does realized volatility help bond yield density prediction?

This paper examines the importance of realized volatility in bond yield density prediction. We incorporate realized volatility into a Dynamic Nelson-Siegel (DNS) model with stochastic volatility and evaluate its predictive performance on US bond yield data. When compared to popular specifications in the DNS literature without realized volatility, we find that having this information improves density forecasting performance.

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Paper Number
13-064
Year
2013