Credit Spread and Aggregate Tobin's Q
Posted: 30 Sep 2013
Date Written: September 30, 2013
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
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