Default and Liquidity Regimes in the Bond Market During the 2002-2012 Period
Canadian Journal of Economics, Forthcoming
39 Pages Posted: 21 Aug 2013 Last revised: 17 Sep 2013
There are 2 versions of this paper
Default and Liquidity Regimes in the Bond Market During the 2002-2012 Period
Default and Liquidity Regimes in the Bond Market During the 2002–2012 Period (Régimes de risque de défaut de paiement et de liquidité dans le marché obligataire pour la période 2002–2012)
Date Written: September 16, 2013
Abstract
Using a real-time random regime shift technique, we identify and discuss two different regimes in the dynamics of credit spreads during 2002-2012: a liquidity regime and a default regime. Both regimes contribute to the patterns observed in credit spreads. The liquidity regime seems to explain the predictive power of credit risk on the 2007-2009 NBER recession, whereas the default regime drives the persistence of credit spreads over the same recession. Our results complement the recent dynamic structural models as well as monetary and credit supply effects models by empirically supporting two important patterns in credit spreads: the persistence and the predictive ability toward economic downturns.
Keywords: Credit spread, credit default swaps, real-time regime detection, market risk, liquidity cycle, default cycle, credit cycle, NBER economic cycle
JEL Classification: C32, C52, C61, G12, G13
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
Recommended Papers
-
Explaining the Rate Spread on Corporate Bonds
By Edwin J. Elton, Martin J. Gruber, ...
-
The Determinants of Credit Spread Changes
By Pierre Collin-dufresne, J. Spencer Martin, ...
-
How Much of Corporate-Treasury Yield Spread is Due to Credit Risk?
By Jing-zhi Huang and Ming Huang
-
How Much of the Corporate-Treasury Yield Spread is Due to Credit Risk?
By Jing-zhi Huang and Ming Huang
-
How Much of the Corporate-Treasury Yield Spread is Due to Credit Risk?
By Jing-zhi Huang and Ming Huang
-
Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market
By Francis A. Longstaff, Sanjay Mithal, ...
-
Equity Volatility and Corporate Bond Yields
By John Y. Campbell and Glen B. Taksler
-
Equity Volatility and Corporate Bond Yields
By John Y. Campbell and Glen B. Taksler
-
Structural Models of Corporate Bond Pricing: An Empirical Analysis
By Young Ho Eom, Jing-zhi Huang, ...
-
By Roberto Blanco, Simon Brennan, ...
