SELECTING A BOND PRICING MODEL FOR TRADING IN KAZAKHSTAN

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dc.contributor.authorAbdygaliyev, Azamat
dc.contributor.authorSaktassynov, Yerassyl
dc.date.accessioned2023-12-27T05:51:52Z
dc.date.available2023-12-27T05:51:52Z
dc.date.issued2022-12-14
dc.description.abstractIn this research, we fit term structure models of the interest rates to cross-sections of government bonds in Kazakhstan and investigate whether we can use the pricing errors as indicators of mispricing. We test whether we can generate excess returns by building portfolios of bonds based on the mispricing from the term structure models. We consider commonly used specifications of term structure models: Cox, Ingersoll and Ross (“CIR”) and Vasicek as well as basic spline function. The abnormal returns are measured against a duration-based benchmark. We construct zero-yield curves based on the cross-sectional estimates from the term structure models and compare this to term structure plots based on tenure (duration/convexity). Trading test results show that CIR and Vasicek bond-pricing models efficiently detect mispricing and generate 14.4% and 15% cumulative abnormal returns (“CAR”) over 6 years if the data would be actually tradable. On the other hand, spline model overfits the data and does not detect mispricing as efficiently as both economic models. Experiments with less knot points did not help to improve the issue of overfitting. Because of limitations to the number of cross-section estimations we are unable to show that the CARs for CIR and Vasicek are statistically significant. However, the pattern seems similar for both term structure models.en_US
dc.identifier.citationAbdygaliyev, A.Saktassynov, Y. (2022) Selecting a bond pricing model for trading in Kazakhstan. Nazarbayev University, Graduate School of Businessen_US
dc.identifier.urihttp://nur.nu.edu.kz/handle/123456789/7558
dc.language.isoenen_US
dc.publisherNazarbayev University, Graduate School of Businessen_US
dc.rightsAttribution-NonCommercial-NoDerivs 3.0 United States*
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/us/*
dc.subjectBondsen_US
dc.subjectBond-pricing modelen_US
dc.subjectAbnormal returnsen_US
dc.subjectDurationen_US
dc.subjectSplineen_US
dc.subjectType of access: Restricteden_US
dc.titleSELECTING A BOND PRICING MODEL FOR TRADING IN KAZAKHSTANen_US
dc.typeMaster's thesisen_US
workflow.import.sourcescience

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