Estimating term structure changes using principal component analysis in Indian sovereign bond market

Golaka Nath

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyses the India sovereign yield to find out the principal factors affecting the term structure of interest rate changes. We apply Principal Component Analysis (PCA) on our data consisting of zero coupon interest rates derived from government bond trading using Nelson-Siegel functional form. This decomposition of the yield curve highlights important relationship between identified factors and metrics of the term structure shape. The empirical findings support statistical similarities between the Indian yield curve and term structure studies of major countries.

Keywords: Indian Sovereign Yield Curve; principal component; interest rates; bond; yield curve; macroeconomics; term structure of interest rates (search for similar items in EconPapers)
JEL-codes: E31 E43 E44 G12 (search for similar items in EconPapers)
Date: 2012-06-04
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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