The Nonlinear Dynamics of Corporate Bond Spreads: Regime-Dependent Effects of their Determinants-Reference-Cited by-同舟云学术

The Nonlinear Dynamics of Corporate Bond Spreads: Regime-Dependent Effects of their Determinants

Published:2021-01-12 Issue:2 Volume:241 Page:187-238
ISSN:0021-4027
Container-title:Jahrbücher für Nationalökonomie und Statistik
language:en
Short-container-title:

Author:

Fischer Henning¹,Stolper Oscar²^ORCID

Affiliation:

1. Deutsche Bundesbank , Wilhelm-Epstein-Str. 14 , 60431 Frankfurt , Germany

2. Behavioral Finance Research Group, University of Marburg , Am Plan 1 , 35032 Marburg , Germany

Abstract

Abstract This paper studies the behavior of corporate bond spreads during different market regimes between 2004 and 2016. Applying a Markov-switching vector autoregressive (MS-VAR) model, we document that the dynamic impact of spread determinants varies substantially with market conditions. In periods of high volatility, systematic credit risk—rather than interest rate movements—contributes to driving up spreads. Moreover, while market-wide liquidity risk is not priced when volatility is low, it becomes a crucial factor during stress periods. Our results challenge the notion that spreads predominantly capture credit risk and suggest it must be reassessed during periods of financial distress.

Publisher

Walter de Gruyter GmbH

Subject

Economics and Econometrics,Social Sciences (miscellaneous),General Business, Management and Accounting

Link

https://www.degruyter.com/document/doi/10.1515/jbnst-2020-0002/pdf

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