IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20000064.html
   My bibliography  Save this paper

Cross- and Auto-Correlation Effects arising from Averaging: The Case of US Interest Rates and Equity Duration

Author

Listed:
  • Winfried G. Hallerbach

    (Erasmus University Rotterdam)

Abstract

Most of the available monthly interest data series consist of monthlyaverages of daily observations. It is well-known that this averaging introduces spurious autocorrelation effectsin the first differences of the series. It isexactly this differenced series we are interested in when estimatinginterest rate risk exposures e.g. This paperpresents a method to filter this autocorrelation component from theaveraged series. In addition we investigate thepotential effect of averaging on duration analysis, viz. whenestimating the relationship between interest rates andfinancial market variables like equity or bond prices. In contrast tointerest rates the latter price series are readilyavailable in ultimo month form. We find that combining monthlyreturns on market variables with changes inaveraged interest rates leads to serious biases in estimatedcorrelations (R2s), regression coefficients (durations)and their significance (t-statistics). Our theoretical findings areconfirmed by an empirical investigation of USinterest rates and their relationship with US equities (S&P 500Index).

Suggested Citation

  • Winfried G. Hallerbach, 2000. "Cross- and Auto-Correlation Effects arising from Averaging: The Case of US Interest Rates and Equity Duration," Tinbergen Institute Discussion Papers 00-064/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20000064
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/00064.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    interest rates; duration; averaging; time series properties; spurious autocorrelation;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20000064. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.