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| Tekijä: | Joutz, F.L. Maxwell, W.F. |
| Otsikko: | Modeling the yields on noninvestment grade bond indexes: Credit risk and macroeconomic factors |
| Lehti: | International Review of Financial Analysis
2002 : VOL. 11:3, p. 345-374 |
| Asiasana: | Stock markets Market segmentation Credit management Risk Forecasting Cointegration Pricing Models |
| Vapaa asiasana: | Derivatives Spreads |
| Kieli: | eng |
| Tiivistelmä: | To accurately price credit derivatives, it is necessary to understand the underlying factors that determine credit spreads and the influence that external shocks can have on required yields. This paper models the factors that influence the yield on the most volatile segment of the corporate bond market, noninvestment grade bonds. A long-run equilibrium is found btw. the yield on BB- and B-rated bonds and Treasury yields, Moody's default rate, and the leading economic indicator. In the short run, changes in Treasury yields, Moody's default rates, and mutual fund flow continue to affect the movements in noninvestment yields. It is also found among others that the resulting error correction models are useful in forecasting the yields. External shocks have a greater effect on the more volatile B-rated bonds. Crises like the Iraqi invasion of Kuwait, the Russian and Asian financial crises, and Long-Term Capital Management collapse are found to have influence on noninvestment grade yields. |
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