Is There a Structural Break in the Risk Free Interest Rate Dynamics?

Download or read book Is There a Structural Break in the Risk Free Interest Rate Dynamics? written by Jun Ma and published by . This book was released on 2008 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: I use the endogenous structural breakpoint tests to search for a structural change in the risk free interest rate dynamics based on the model proposed by Chan, Karolyi, Longstaff and Sanders (1992) (hereafter CKLS). Monte Carlo experiments show that a reliance of the asymptotic distribution leads to a size distortion in finite sample, but bootstrapping can reduce the size distortion. My results indicate a mild evidence of a structural break in the risk free rate which coincides with the monetary policy change in the early 1980s and after that the volatility of risk free rate dropped dramatically.