Pricing Bonds in the Australian Market
Date
2008
Authors
Bilson, Chris
Brailsford, Timothy John
Sullivan, Luke J
Treepongkaruna, Sirimon
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Publisher
University of New South Wales
Abstract
This paper provides an examination of term structure models in the Australian bond market. Specifically, we examine the comparative ability of various models to forecast at the short, medium and long ends of the yield curve. Overall, we find that model performance varies along the yield curve. Out-of-sample pricing tests show that most of the term structure models underprice a bond at the short and medium ends of the term structure and generally overprice bonds at the long end. Further, the level of mispricing is related to time-to-maturity, coupon payments and interest rate volatility. The results have implications for bond pricing in relatively illiquid markets like Australia's.
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Keywords
Keywords: Bond pricing; Interest rates; Term structure; Yield curve
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Source
Australian Journal of Management
Type
Journal article
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Restricted until
2037-12-31
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