Equity Trading Activity and Credit Spread Shock
University of Maryland Eastern Shore - School of Business and Technology
September 26, 2013
Journal of Trading, 9(2), 21-26. March, 2014.
This study investigates how equity trading activity dynamically responds to credit spread shock. Based on the analysis of monthly data from 1925M1 to 2013M7, equity trading activity, using share volume turnover as a proxy, significantly drops following the shock to credit spread. The results from the Granger-causality test show that credit spread Granger-causes equity trading activity to drop. The variance decomposition results indicate that credit spread forecasts about 1.77%, 2.25% and 4.22% of equity trading activity at the 3-month, 6-month and 12-month horizons, respectively.
Number of Pages in PDF File: 12
Keywords: share turnover, trading activity, credit spread
JEL Classification: G12, G14
Date posted: September 28, 2013 ; Last revised: April 17, 2014