Corporate Profit and Credit Spread Dynamics
University of Maryland Eastern Shore - School of Business and Technology
August 14, 2014
This study examines the dynamic response of credit spread (CS) to corporate profit growth (CP) shock. Using the bivariate VAR model to analyze quarterly data from 1952Q1 to 2012Q4, the results show that credit spread drops immediately following the positive shock to corporate profit growth, and it stays stably low for the horizon of 8 quarters. The Granger causality Wald tests indicate a causal linkage between credit spread and corporate profit growth.
Keywords: corporate profit growth, credit spread, VAR
JEL Classification: G12, G14, G17working papers series
Date posted: August 14, 2014
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