Default and liquidity regimes in the bond market during the 2002-2012 period

Using a real-time random regime shift technique, we identify and discuss two different regimes in the dynamics of credit spreads during 2002-2012: a liquidity regime and a default regime. Both regimes contribute to the patterns observed in credit spreads. The liquidity regime seems to explain the predictive power of credit risk on the 2007-2009 NBER recession, whereas the default regime drives the persistence of credit spreads over the same recession. Our results complement the recent dynamic structural models as well as monetary and credit supply effects models by empirically supporting two important patterns in credit spreads: the persistence and the predictive ability toward economic downturns.
Publisher
WILEY-BLACKWELL
Issue Date
2013-11
Language
ENG
Keywords

CORPORATE YIELD SPREADS; STRUCTURAL-CHANGE MODELS; MULTIPLE CHANGE-POINT; TIME-SERIES; MACROECONOMIC CONDITIONS; CAPITAL STRUCTURE; CREDIT SPREADS; SWAP SPREADS; RISK; RETURNS

Citation

CANADIAN JOURNAL OF ECONOMICS-REVUE CANADIENNE D ECONOMIQUE, v.46, no.4, pp.1160 - 1195

ISSN
0008-4085
DOI
10.1111/caje.12057
URI
http://hdl.handle.net/10203/188610
Appears in Collection
KGSF-Journal Papers(저널논문)
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