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Tests for Jumps in Yield Spreads

Author

Listed:
  • Lars Winkelmann
  • Wenying Yao
Abstract
This paper studies high-frequency econometric methods to test for a jump in the spread of bond yields. We propose a coherent inference procedure that detects a jump in the yield spread only if at least one of the two underlying bonds displays a jump. Ignoring this inherent connection by basing inference only on a univariate jump test applied to the spread tends to overestimate the number of jumps in yield spreads and puts the coherence of test results at risk. We formalize the statistical approach in the context of an intersection union test in multiple testing. We document the relevance of coherent tests and their practicability via simulations and real data examples.

Suggested Citation

  • Lars Winkelmann & Wenying Yao, 2023. "Tests for Jumps in Yield Spreads," Berlin School of Economics Discussion Papers 0024, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0024
    DOI: 10.48462/opus4-5073
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    High-frequency data; jumps; sequential testing; intersection union test; term spread; break-even inflation;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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