Empirical analysis of term structure shifts

Joel R. Barber ()
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Joel R. Barber: Florida International University

Journal of Economics and Finance, 2021, vol. 45, issue 2, No 8, 360-371

Abstract: Abstract Principal component analysis and factor analysis of term structure movements shows that between 80 and 90% of term structure shifts can be explained by a uniform shift that is roughly parallel. In contrast, our analysis of term structure data from 1986 to 2016 reveals that only 57% of the shifts have been uniform. Twist- and butterfly-type shifts accounted for 28 and 10%, respectively, of all shifts. Remarkably, these frequency results are roughly the same for uniform and twist shifts determined on a daily, weekly, and monthly basis over the entire sample and over three subperiods. Based on historical data, an investor should expect a uniform shift in the term structure about 57% and a twist 28% of the time.

Keywords: Term structure shift; Spot rates; Principal component analysis (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s12197-020-09521-9

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