Acta Oeconomica
Volume/Issue:
Volume 69: Issue 1
Principal component analysis in negative interest rate environment
Author:
Milan Lazarević Milan Lazarević, analyst, Pavlović International Bank ad, Bijeljina, Bosnia and Herzegovina.

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Pages:
101–125
Online Publication Date:
Mar 2019
Publication Date:
01 Mar 2019
Article Category:
Journal Article
DOI:
https://doi.org/10.1556/032.2019.69.1.6
Keywords:
Principal Component Analysis (PCA); negative interest rates; interest rate risk; yield curve; correlation matrix
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Principal Component Analysis (PCA) is a risk management technique which is, due to the consequences of multicollinearity, particularly suitable to describe the yield curve. Its final results in this segment are presented through three main factors: shift, slope and curvature. They express predictive trajectories and explain over 95% of variability under normal market conditions. The main goal of this paper is to assess whether the established behavioural patterns are observable in the presence of negative interest rates. The EU bond market was used as an empirical basis with respect to the reactions of the European Central Bank and the establishment of negative reference interest rates in the assessed period. The algebraic properties of the principal components in the presence of negative interest rates correspond to the determined directions of movement, except that the slope and curvature have different signs given their diametrically opposite trends. The percentage of variability explained with the help of PCA is lower compared to the normal market conditions and if an equivalent level of approximation is required, it is necessary to include a fourth factor in PCA. This factor is, due to its properties, aptly named oscillatority. An implicit conclusion of our research is that the duration in the conditions of negative interest rates has less useful power in managing the interest rate risk of individual instruments.

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Cover Acta Oeconomica
Acta Oeconomica Periodical of the Hungarian Academy of Sciences
Print ISSN:
0001-6373
Online ISSN:
1588-2659

Senior editors

Editors-in-Chief: István P. Székely, Dóra Győrffy

Editor(s): Judit Kálmán

Associate Editors

  • Péter Benczúr, Joint Joint Research Center, European Commission
  • Dóra Benedek, International Monetary Fund
  • Balázs Égert, OECD
  • Dániel Prinz, World Bank
  • Rok Spruk, University of Ljubljana, School of Economics and Business, Slovenia

Editorial Board

  • Anders Åslund, Georgetown University and Advisory Council of CASE, USA
  • István Benczes, Corvinus University of Budapest, Hungary 
  • Agnieszka Chłoń-Domińczak, SGH Warsaw School of Economics, Poland
  • Fabrizio Coricelli, University of Siena, Italy
  • László Csaba, Corvinus University of Budapest, Hungary and Central European University, Austria
  • Beáta Farkas, Faculty of Economics and Business Administration, University of Szeged, Hungary
  • Péter Halmai, Budapest University of Technology and Economics, and National University of Public Service, Hungary
  • Martin Kahanec, Central European University, Austria
  • Michael Landesmann, The Vienna Institute for International Economic Studies (WIIW), Austria
  • Péter Mihályi, Corvinus University of Budapest, Hungary
  • Debora Revoltella, European Investment Bank

Corvinus University of Budapest
Department of Economics
Fővám tér 8 Budapest, H-1093, Hungary
E-mail: judit.kalman@uni-corvinus.hu

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2023  
Web of Science  
Journal Impact Factor 0.7
Rank by Impact Factor Q3 (Economics)
Journal Citation Indicator 0.23
Scopus  
CiteScore 1.4
CiteScore rank Q3 (Economics and Econometrics)
SNIP 0.385
Scimago  
SJR index 0.218
SJR Q rank Q4

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Acta Oeconomica
Language English
Size B5
Year of
Foundation		 1966
Volumes
per Year		 1
Issues
per Year		 4
Founder Magyar Tudományos Akadémia
Founder's
Address		 H-1051 Budapest, Hungary, Széchenyi István tér 9.
Publisher Akadémiai Kiadó
Publisher's
Address		 H-1117 Budapest, Hungary 1516 Budapest, PO Box 245.
Responsible
Publisher		 Chief Executive Officer, Akadémiai Kiadó
ISSN 0001-6373 (Print)
ISSN 1588-2659 (Online)

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