European Asset Swap Spreads and the Credit Crisis

42 Pages Posted: 8 May 2013

See all articles by Wolfgang Aussenegg

Wolfgang Aussenegg

Vienna University of Technology

Lukas Götz

UNIQA Finanz-Service GmbH

Ranko Jelic

University of Sussex Business School

Date Written: November 2012

Abstract

We examine time-varying behavior and determinants of asset swap (ASW) spreads for 23 iBoxx European corporate bond indexes stratified by industry, credit rating and seniority. The results of a Markov switching model suggest that ASW spreads exhibit regime dependent behavior. The evidence is particularly strong for Financial and Corporates Subordinated indexes. Stock market volatility determines ASW spread changes in turbulent periods whereas stock returns tend to affect spread changes in periods of lower volatility. Whilst market liquidity affects spreads only in turbulent regimes the level of interest rates is an important determinant of spread changes in both regimes. Finally, we identify stock returns, lagged ASW spread levels, and lagged volatility of ASW spreads as major drivers of the regime shifts.

Keywords: European Bonds, Asset Swaps, Credit Risk, Financial Crisis, Markov Switching

JEL Classification: C13, C32, G12

Suggested Citation

Aussenegg, Wolfgang and Götz, Lukas and Jelic, Ranko, European Asset Swap Spreads and the Credit Crisis (November 2012). Available at SSRN: https://ssrn.com/abstract=2261826 or http://dx.doi.org/10.2139/ssrn.2261826

Wolfgang Aussenegg

Vienna University of Technology ( email )

Theresianumgasse 27
Vienna, A-1040
Austria
+43 1 58801 33082 (Phone)
+43 1 58801 33098 (Fax)

HOME PAGE: http://www.imw.tuwien.ac.at/fc/people/wolfgang_aussenegg/

Lukas Götz

UNIQA Finanz-Service GmbH ( email )

Untere Donaustraße 21
Vienna, 1029
Austria

Ranko Jelic (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom
+441273872597 (Phone)

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