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Revista EIA

Print version ISSN 1794-1237
On-line version ISSN 2463-0950

Abstract

PANTOJA, Javier O. CONDITIONAL VOLATILITY OF COLOMBIAN GOVERNMENTAL FIXED INCOME SECURITIES AS A PREDICTOR OF SHORT-TERM RETURNS. Rev.EIA.Esc.Ing.Antioq [online]. 2008, n.10, pp.73-87. ISSN 1794-1237.

According to literature, the long-maturity forward rates have information about the structure of the expected short-term returns. This paper finds that the conditional volatility factor also has information for predicting the term premium in the six-month expected returns with different maturities. That is, including conditional volatility allows capturing a risk factor consistent with the agent"s expectations. A slow mean-reverting process is also found across different maturities, which is the case of the governmental fixed income securities. In fact, the power of forecasting changes from a six-month to a three-year forward period, at six-month steps according to the mean-reverting tendency which also implied that its predictive power improves at longer forecasting horizons. On the other hand, it presents evidence about the Colombian markets crash in May 2006, which generated special conditions that impacted the market"s behavior and the agent"s risk tolerance.

Keywords : conditional volatility; short term return structure; forward rates; GARCH models; term premium; governmental fixed income securities.

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