Measuring Corporate Bond Market Dislocations
72 Pages Posted: 20 Jan 2021 Last revised: 1 Jul 2021
Date Written: January 1, 2021
We propose the Corporate Bond Market Distress Index (CMDI) to quantify corporate bond market dislocations in real time. The index takes a preponderance-of-metrics perspective to combine a broad set of measures of market functioning from primary and secondary markets but not driven by any one statistic. We document that the index correctly identifies periods of dislocations and predicts future realizations of commonly used measures of market distress, while the converse is not the case. Moreover, the CMDI is an economically and statistically significant predictor of future economic activity, even after controlling for standard predictors, including credit spreads.
Keywords: corporate bond market conditions, corporate bond spreads, corporate bond issuance, corporate bond liquidity
JEL Classification: G12, G19, C43, E37
Suggested Citation: Suggested Citation