The stability of factor models of interest rates

Journal
Journal of Financial Econometrics
ISSN
1479-8409
ISSN-Digital
1479-8417
Type
journal article
Date Issued
2005
Author(s)
;
Barone Adesi, Giovanni
;
Mira, Antonietta
DOI
Abstract
The daily term structure of interest rates is filtered to reduce the influence of cross-correlations and autocorrelations on its factors. A three-factor model is fitted to the filtered data. We perform statistical tests, finding that factor loadings are unstable through time for daily data. This finding is not due to the presence of outliers nor to the selected number of factors. Such an instability problem can be solved when applying the factor analysis on multivariate scaled residuals, filtered using a nonparametric technique based on functional gradient descent.
Language
English
Keywords
factor analysis
FGD
robust regression
term structure
HSG Classification
not classified
Refereed
Yes
Publisher
Oxford University Press
Publisher place
Oxford
Volume
3
Number
3
Start page
422
End page
441
Pages
20
URL
Subject(s)

economics

Division(s)

SEPS - School of Econ...

MS - Faculty of Mathe...

Eprints ID
32649