I am looking to replicate the results from a older research paper. To do that I need first to calculate the returns from Federal Reserve's daily constant maturity interest rate series.
According to the research paper:
"We calculate excess returns on holding Treasury bonds over the spot rate (assumed equal to the rate on three-month T-bills) for the period 1979-1995."
"We calculate returns using the Federal Reserve's constant maturity interest rate series. Returns are calculated from the published yields using a hypothetical bond with the stated maturity and a coupon equal to the yield, thus trading at par or face value [similar to the method used by Ibbotson and Associates (1994), for example]. We calculate an end-of-period price on this bond using the next day's yield. Total returns equal capital appreciation plus the excess income over the short rate that accrues over the holding period, which varies from one to four days due to weekends and holidays."
Can someone point me to some practical guide on how to calculate this kind of returns? Or if possible to provide a step-by-step example?