Testing For Instability In Factor Structure Of Yield Curves

A widely relied upon but a formally untested consideration is the issue of stability in factors underlying the term structure of interest rates. In testing for stability, practitioners as well as academics have employed ad-hoc techniques such as splitting the sample into a few sub-periods and determining whether the factor loadings have appeared to be similar over all sub-periods. Various authors have found mixed evidence on stability in the factors. In this paper the authors develop formal tests in order to evaluate the factor structure stability of the US zero coupon yield term structure.