Intra-Market Correlations in the Bond Markets: Extending Empirical Regularities from the Equity Markets

35 Pages Posted: 22 Feb 2017 Last revised: 26 May 2017

See all articles by Robert S. Goldberg

Robert S. Goldberg

Adelphi University

Ehud I. Ronn

University of Texas at Austin - Department of Finance

Date Written: February 19, 2017

Abstract

The capital markets in general, and the equity markets in particular, exhibit a well-known phenomenon: During times of distress, intra-market correlations tighten, as traded assets exhibit a greater sensitivity to the "systematic factor." This paper extends that analysis to the corporate bond markets, by demonstrating that the fixed-income markets exhibit that same empirical regularity. Specifically, capitalizing on the liquidity of corporate CDS rates, we use this data to demonstrate how these intra-market correlations tightened during recent periods of crisis. Whereas most components of capital markets have substantially recovered from their crisis magnitudes, our analysis of the distribution of pair-wise CDS correlations demonstrates a recovery from crisis levels -- but, as of 2015, not yet to pre-crisis levels.

Keywords: Correlation within Bond Markets, Crisis vs. Non-Crsis Periods, Contrast of Bond and Equity Markets' Correlations

JEL Classification: G12, G01

Suggested Citation

Goldberg, Robert S. and Ronn, Ehud I., Intra-Market Correlations in the Bond Markets: Extending Empirical Regularities from the Equity Markets (February 19, 2017). Available at SSRN: https://ssrn.com/abstract=2920619 or http://dx.doi.org/10.2139/ssrn.2920619

Robert S. Goldberg

Adelphi University ( email )

School of Business
Garden City, NY 11530
United States

Ehud I. Ronn (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Graduate School of Business
Austin, TX 78712
United States
512-471-5853 (Phone)
512-471-5073 (Fax)

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