Estimation of continuous-time models for stock returns and interest rates
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Efficient Method of Moments is used to estimate and test continuous-time diffusion models for stock returns and interest rates. For stock returns, a four-state, two-factor diffusion with one state observed can account for the dynamics of the daily return on the S&P Composite Index, 1927-1987. This contrasts with results indicating that discrete-time, stochastic volatility models cannot explain these dynamics. For interest rates, a trivariate Yield-Factor Model is estimated from weekly, 1962-1995, Treasury rates. The Yield-Factor Model is sharply rejected, although extensions permitting convexities in the local variance come closer to fitting the data.
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William Henry Glasson Distinguished Professor of Economics
George Tauchen is the William Henry Glasson Professor of Economics and professor of finance at the Fuqua School of Business. He joined the Duke faculty in 1977 after receiving his Ph.D. from the University of Minnesota. He did his undergraduate work at the University of Wisconsin. Professor Tauchen is a fellow of the Econometric Society, the American Statistical Association, the Journal of Econometrics, and the Society for Financial Econometrics (SoFie). He is also the 2003 Duke University Sc