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Empirical analysis of term structure shifts

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  • Joel R. Barber

    (Florida International University)

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.

Suggested Citation

  • Joel R. Barber, 2021. "Empirical analysis of term structure shifts," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(2), pages 360-371, April.
    • Handle: RePEc:spr:jecfin:v:45:y:2021:i:2:d:10.1007_s12197-020-09521-9
    DOI: 10.1007/s12197-020-09521-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Term structure shift; Spot rates; Principal component analysis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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