Dynamic Response of Credit Spread to S&P 500 Dividend Yield Shock
Posted: 3 Oct 2013
Date Written: October 3, 2013
This study investigates the dynamic response of credit spread (CS) to S&P 500 dividend yield (DY) shock. Based on the analysis of monthly data from 1919M1 to 2013M8, the VAR results show that credit spread significantly rises immediately following shock to the S&P 500 dividend yield. The results also show that there is a significant causal linkage between CS and DY. The variance decomposition results indicate that S&P 500 dividend yield forecasts about 2.72%, 5.00% and 7.12% of credit spread at the 6-month, 12-month and 24-month horizons, respectively.
Keywords: S&P 500 dividend yield, credit spread, VAR
JEL Classification: G12, G14
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