01958cam a22002657 4500001000600000003000500006005001700011008004100028100002500069245014000094260006600234490004100300500001900341520081400360530006101174538007201235538003601307690011201343700002401455700002201479710004201501830007601543856003701619856003601656w6325NBER20191019034421.0191019s1997 mau||||fs|||| 000 0 eng d1 aBalduzzi, Pierluigi.14aThe Central Tendencyh[electronic resource]:bA Second Factor in Bond Yields /cPierluigi Balduzzi, Sanjiv Ranjan Das, Silverio Foresi. aCambridge, Mass.bNational Bureau of Economic Researchc1997.1 aNBER working paper seriesvno. w6325 aDecember 1997.3 aWe assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was constant. However, since longer-maturity bond prices incorporate information" about the central tendency, longer-maturity bond yields can be used to predict future short-term" rate movements. We develop a two-factor model of the term-structure which implies that a" linear combination of any two rates can be used as a proxy for the central tendency. Based on" this central-tendency proxy, we estimate a model of the one-month rate which performs better" than models which assume the central tendency to be constant. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class.1 aDas, Sanjiv Ranjan.1 aForesi, Silverio.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w6325.4 uhttp://www.nber.org/papers/w632541uhttp://dx.doi.org/10.3386/w6325