The Impact of Terrorism on Global Equity Market Integration
Australian National University (ANU) - Faculty of Economics & Commerce
Aiden G. Hallett
Goldman Sachs Australia Pty Ltd.
Australian National University - Research School of Finance, Actuarial Studies and Applied Statistics; Financial Research Network (FIRN)
April 4, 2012
Australian Journal of Management, Vol. 37, No. 1, 2012
This paper investigates the determinants of credit spreads (levels and changes) via credit derivatives, using an Australian sample. We incorporate a number of different relationships to assess the contributions of various market-wide and firm-specific factors in determining levels, and changes in credit spreads, of corporate bonds. Using over-the-counter credit default swap (CDS) premium data as a proxy for the default risk of the entity, we find that both CDS and liquidity are priced into credit spreads, with liquidity explaining more credit spreads than credit risk (proxied using CDS premia) itself. We also find that a number of firm-specific and market-wide variables, namely, firm leverage, market-to-book ratio, market value, volatility, liquidity, the spot rate, the slope of the yield curve, the time to maturity of the underlying bond and the level and return on the All Ordinaries Index, are in many cases significant determinants of credit spreads. Finally, in additional robustness testing, a potential sample selection bias is accommodated via the Heckman ((1979) Sample selection bias as a specification error. Econometrica 47: 153–162) procedure.
Keywords: capital market integration, contagion, international equity markets, terrorismAccepted Paper Series
Date posted: May 5, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.422 seconds