Governed by the cycle: interest rate sensitivity of emerging market corporate debt

Abstract

This study addresses interest rate sensitivity of emerging market corporate debt. Previous research suggests that interest rate sensitivity of corporate bonds depends on residual maturity of issues, creditworthiness of issuers, embedded options and other idiosyncratic factors. However, the dependence of interest rate sensitivity on phases of the business cycle has not received an appropriate academic attention. This paper provides empirical evidence and theoretical interpretation of a dichotomy of interest rate sensitivity across the phases of the cycle, and sheds light on how credit spreads respond to interest rates. The historical span of the research covers the period of 2004-2016. The findings imply that hedging interest rate risk ought to be a dynamic process and take into consideration where the economy is positioned in the current business cycle. This research provides important insights on the nature of interest rate sensitivity, capable of enhancing financial stability and improving efficiency of financial system.

For whom does it pay to be a moral capitalist? Sustainability of corporate financial performance of ESG investment

“…It is worth noting that the MSCI ESG Leaders’ databases are vastly used by diverse researchers investigating the ESG role and impacts and, hence, the selection of the MSCI ESG Leaders’ indices for our research is thoroughly supported by the literature; see e.g., [ 3 , 4 , 22 , 23 ]. Being interested in the long-term sustainability agenda, and not in the intraday and daily trading of ESG positions, we study the performance of the ESG investments through the prism of time-varying capital gains (CGS) [ 24 , 25 ] and Sharpe ratios [ 26 ] for diverse investment horizons. In what concerns the adopted methodology, the capital gains (CGS) metric is widely used in finance and economics in such domain such as personal saving behavior [ 27 ], tax optimization [ 28 ], interest rate sensitivity [ 24 , 25 ] among many others.…”

“…Being interested in the long-term sustainability agenda, and not in the intraday and daily trading of ESG positions, we study the performance of the ESG investments through the prism of time-varying capital gains (CGS) [ 24 , 25 ] and Sharpe ratios [ 26 ] for diverse investment horizons. In what concerns the adopted methodology, the capital gains (CGS) metric is widely used in finance and economics in such domain such as personal saving behavior [ 27 ], tax optimization [ 28 ], interest rate sensitivity [ 24 , 25 ] among many others. This is a prominent, computationally simple, and robust method, allowing to study investments in diverse financial instruments such as bonds, real estate, equities, etc., over varying time horizons, which provides a necessary flexibility and comparability of results.…”

Oil price shocks and the term structure of the US yield curve: a time–frequency analysis of spillovers and risk transmission

“…For advanced reading on the subject we suggest (Bernanke, 2009 ; Yellen, 2013 . Spierdijk & Umar, 2015 ; Cai et al, 2018 ; Culp et al, 2018 ; Gubareva & Umar, 2020 ; Samitas et al, 2020 ; Umar et al, 2020 ; Umar & Gubareva, 2020 , and Gubareva & Borges, 2021 ).…”