Common Factors in International Bond Returns Revisited: A Common Principal Component Approach

41 Pages Posted: 4 Mar 2002

See all articles by Franck Moraux

Franck Moraux

Université de Rennes I and CREM

Christophe Perignon

HEC Paris - Finance Department

Christophe Villa

Audencia Nantes School of Management

Date Written: February 2002

Abstract

The movements of domestic term structures of interest rates are commonly assumed to be driven by a small number of factors, usually obtained from a principal component analysis. In order to model simultaneously the dynamics of several domestic term structures, principal component analysis is applied either to the pooled data or separately to each domestic term structure. Although researchers often notice that the shape of the factor loadings is the same for all countries but that the explained variance per factor is quite different across countries, they stop formulating constraints on parameters. This paper applies Common Principal Component analysis to deal with this issue.

Keywords: Term Structure, Interest Rates, Factor Models, Principal Component Analysis, Common Principal Component Analysis

JEL Classification: G15, C40

Suggested Citation

Moraux, Franck and Perignon, Christophe and Villa, Christophe, Common Factors in International Bond Returns Revisited: A Common Principal Component Approach (February 2002). Available at SSRN: https://ssrn.com/abstract=302086 or http://dx.doi.org/10.2139/ssrn.302086

Franck Moraux (Contact Author)

Université de Rennes I and CREM ( email )

IAE de Rennes
11, rue Jean Macé
Rennes, 35000
France
+33 (0)2 23 23 78 08 (Phone)
+33 (0)2 23 23 78 00 (Fax)

HOME PAGE: http://perso.univ-rennes1.fr/franck.moraux/

Christophe Perignon

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Christophe Villa

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

HOME PAGE: http://www.audencia.com/?id=970

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