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Equity, credit and the business cycle

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  • Florian Ielpo

Abstract

Both domestic economies and financial markets are affected by cycles that are often represented through multi-state models such as Markov Switching (MS) models. This article discusses the performances associated to the government bond, the equity and the credit cases along the business cycle, using both an European and a US dataset over the 1987 to 2010 period. Periods of noninflationary growth have been strongly supportive to the credit universe, whereas inflationary growth has led to a strong performance of the equity asset class. On the contrary, recession periods are characterized by strong performances from government and investment grade bonds. These statements hold both in the US and in the European cases.

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  • Florian Ielpo, 2012. "Equity, credit and the business cycle," Applied Financial Economics, Taylor & Francis Journals, vol. 22(12), pages 939-954, June.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:12:p:939-954
    DOI: 10.1080/09603107.2011.631891
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    References listed on IDEAS

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    1. Durland, J Michael & McCurdy, Thomas H, 1994. "Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 279-288, July.
    2. Krolzig, H.-M. & Toro, J., 1999. "A New Approach to the Analysis of Shocks and the Cycle in a Model of Output and Employment," Economics Working Papers eco99/30, European University Institute.
    3. José Da Fonseca & Martino Grasselli & Florian Ielpo, 2011. "Hedging (Co)Variance Risk With Variance Swaps," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(06), pages 899-943.
    4. Florian Ielpo, 2013. "Forecasting the European Credit Cycle Using Macroeconomic Variables," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(3), pages 226-246, April.
    5. Pok-san Lam, 1997. "A Markov switching model of GNP growth with duration dependence," Discussion Paper / Institute for Empirical Macroeconomics 124, Federal Reserve Bank of Minneapolis.
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    Cited by:

    1. Aboura, Sofiane & Chevallier, Julien, 2015. "Volatility returns with vengeance: Financial markets vs. commodities," Research in International Business and Finance, Elsevier, vol. 33(C), pages 334-354.
    2. Julien Chevallier & Florian Ielpo, 2013. "Volatility spillovers in commodity markets," Applied Economics Letters, Taylor & Francis Journals, vol. 20(13), pages 1211-1227, September.
    3. Kai Zheng & Weidong Xu & Xili Zhang, 2023. "Multivariate Regime Switching Model Estimation and Asset Allocation," Computational Economics, Springer;Society for Computational Economics, vol. 61(1), pages 165-196, January.
    4. Zhang, Lipai & Li, Biao, 2022. "Mutual supervision or conspiracy? The incentive effect of multiple large shareholders on audit quality requirements," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. repec:dau:papers:123456789/13359 is not listed on IDEAS

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