Linear estimators of the affine term structure model are inconsistent since they cannot reproduce the factors used in estimation. This is a serious handicap empirically, giving a worse fit than the conventional MLE estimator that ensures consistency. We show that a simple self-consistent...

We advocate the use of excess returns rather than yields or log prices in analysing the risk neutral dynamics of the term structure. We show that under standard assumptions, excess returns are affine in the risk neutral innovations in the factors. This framework has several important advantages....