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A dynamic model of expected bond returns : a functional gradient descent approach

Audrino, Francesco ; Barone-Adesi, Giovanni

In: Computational statistics & data analysis, 2006, vol. 51, no. 4, p. 2267-2277

A multivariate methodology based on Functional Gradient Descent to estimate and forecast time-varying expected bond returns is presented and discussed. Backtesting this procedure on US monthly data, empirical evidence of its strong forecasting potential in terms of the accuracy of the predictions is collected. The proposed methodology clearly outperforms the classical univariate analysis used...