A Non-linear Stochastic Consols Yield Model Of Malaysia

This study examines the non-linear stochastic Consols yield model for Malaysia inspired by Whitten and Thomas model in year 1999. Whitten and Thomas model consist six subs-models which are price inflation model, wage inflation model, share dividends, share yields, Consols yield and base rate. We only considered the Consols yield model in this study. Aim of this study is to apply the Consols yield inspired Whitten and Thomas model to Malaysian data by using Threshold Autoregressive (TAR)
method for data estimation. From that, we able to determine the most suitable model for Consols yield in Malaysia. Hence, we compare our model with the inspired Wilkie model for Malaysia developed by Ishak (2015). The data that we used in this study is a 10-Year Malaysian Government Securities (MGS) yield. The data is based on monthly data from year 2006-2016. Descriptive statistics is used to test the statistical behavior of the data. This study shows a positive kurtosis and skewness which indicates that
the distribution has heavier tail than the normal distribution. This study also shows that there is threshold effect on Malaysian Consols yield which is below 3.71% and the most suitable TAR model for Malaysian Consols yield is TAR (3).
Keywords: Whitten and Thomas model; consols yield; mgs yield; threshold autoregressive (tar)