Credit Spread and Aggregate Tobin's Q

Posted: 30 Sep 2013  

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: September 30, 2013

Abstract

This study investigates how credit spread dynamically responds to the change in aggregate Tobin’s q ratio. The VAR results from analyzing quarterly data from 1951 Q4 to 2012 Q4 reveal that credit spread drops significantly following the shock to the change in aggregate Tobin’s q ratio. There is not a response feedback from credit spread to the changes in aggregate Tobin’s q ratio. The variance decomposition results show that the change in aggregate Tobin’s q forecasts about 1.91%, 13.29% and 16.42% at the 2-quarter, 4-quarter and 8-quarter horizons respectively.

Keywords: Credit spread, Tobin’s q ratio, VAR

JEL Classification: G12, G14, G17

Suggested Citation

Sum, Vichet, Credit Spread and Aggregate Tobin's Q (September 30, 2013). Available at SSRN: https://ssrn.com/abstract=2333317

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

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