Credit spread changes within switching regimes

Chun, Olfa Maalaoui; Dionne, Georges; François, Pascal

doi:10.1016/j.jbankfin.2014.08.009

Cited by 31 publications

(16 citation statements)

References 37 publications

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“…Recently, using Markov switching approach, Chun et al (2014) investigated US corporate bonds' credit spread determinants by incorporating regime switching between different economic, credit, and monetary states. They suggested that in their regime-shifting framework, market, default, and liquidity factors had superior explanatory power since those factors were related to regimes.…”

Section: Recent Literature Reviewmentioning

confidence: 99%

Corporate Investment and Portfolio Returns in Japan: A Markov Switching Approach

Tsuji¹

2018

JMS

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This paper explores the profitability of four Japanese higher return equity portfolios and their linkages between corporate investment factor return, the so-called conservative-minus-aggressive (CMA), suggested by Fama and French (2015). Our empirical examinations derive the following evidence. First, in the four Japanese equity portfolios, the smallest and the highest operating profitability portfolio presents the highest return. Second, the smallest and the highest book-to-market (B/M) portfolio, the smallest and moderate investment portfolio, and the smallest and the second strongest momentum portfolio also record higher excess returns than the overall equity market in Japan. Moreover, our analyses via two-regime Markov switching models evidence that for all the four Japanese equity portfolios, there are clearly two regimes: one is positively related to CMA and the other is little or negatively related to CMA. Furthermore, our analyses also reveal that recently, all the four Japanese equity portfolios yield higher returns than CMA with showing weaker linkages between CMA.

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Section: Recent Literature Reviewmentioning

confidence: 99%

Corporate Investment and Portfolio Returns in Japan: A Markov Switching Approach

Tsuji¹

2018

JMS

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“…The Amihud (2002) price impact ratio measures the impact on the price of a given trade size. It is obtained daily, for all bonds which have at least three daily observations (Maalaoui Chun et al, 2014, Dick-Nielsen et al, (2012:…”

Section: Explaining the Cross-section Of Corporate Bond Returns With mentioning

confidence: 99%

A repeat-sales index for pricing US corporate bonds

Beaupain

Heck

2017

Finance

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In this paper we use a repeat-sales index methodology to construct US corporate bond price indices. Using several performance tests, we show that this methodology provides superior index estimates. In particular when assets trade at infrequent and irregular intervals the repeat-sales index is superior to taking an arithmetic price average. The methodology can readily be applied to any sub-sample of bonds based on a particular characteristic, such as the rating or the maturity. We further study the sensitivity of individual bond returns to systematic market risk as measured by a repeat-sales price index. Results indicate that variations in the price index are an important determinant of the time series and of the cross-sectional variation of corporate bond returns.

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“…Van Landschoot [7] contended that credit spreads strongly depend on the rating and maturity of a bond. Maalaoui Chun et al [8] used the equity index return volatility to investigate credit spread changes.…”

Section: Introductionmentioning

confidence: 99%

Investigating the Determinants of Credit Spread Using a Markov Regime-Switching Model: Evidence from Banks in Taiwan

Lee

2021

Sustainability

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In this study, we investigate the determinants of credit spread using a Markov regime-switching model. We consider corporate governance variables and credit risk to analyze the determinants of credit spread. The corporate governance mechanism is an indicator of company sustainability, and credit spread is the main factor in profits obtained by banks. However, the relationship between credit spread and corporate governance is seldom discussed. We focus on loans from banks in Taiwan between 2000 and 2019 and apply a Markov regime-switching model, which is superior to other models in capturing different effects in various regimes. We specify two regime types: corporate governance and credit risk regimes. Furthermore, we consider four aspects of corporate governance: firm ownership structure, board structure, deviation, and information environment. In this study, the determinants of credit spread are investigated more thoroughly than in previous studies. Moreover, in this study, we examine the effects of monetary policy and economic status on credit spread using a Markov regime-switching model; such models are not employed to their full extent in related studies of credit spread. Empirical results indicate that credit spread has different effects in various regimes. Thus, understanding the determinants of credit spread in different regimes is crucial for financial analysts, investors, economic policymakers, and banks. Consequently, we expect that this study can improve the management and measurement of credit risk and be of value to financial institutions.

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Credit spread changes within switching regimes

Cited by 31 publications

References 37 publications

Corporate Investment and Portfolio Returns in Japan: A Markov Switching Approach

Corporate Investment and Portfolio Returns in Japan: A Markov Switching Approach

A repeat-sales index for pricing US corporate bonds

Investigating the Determinants of Credit Spread Using a Markov Regime-Switching Model: Evidence from Banks in Taiwan

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