On the Factor Structure of Bond Returns
证明利率期限结构的最小维度比当前认知更难确定，因子载荷的多项式模式反映的是平滑曲线的局部相关性，并指出基于拟合优度选择简约因子空间会带来显著经济成本。
We demonstrate that characterizing the minimal dimension of the term structure of interest rates is more challenging than currently appreciated. The highly structured polynomial patterns of the factor loadings, which are widely reported and discussed in the literature, reflect local correlations of smooth curves across maturities. We derive analytical expressions for the loadings of cross‐sectionally dependent processes that tend to favor a much lower dimension than the true dimension of the underlying factor space. Numerical examples illustrate the significant economic costs of erroneously committing to a parsimoniously parameterized factor space that is informed by standard metrics of goodness‐of‐fit. Our results apply to other assets with a finite maturity structure.