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Inter-temporal stability of the European credit spread co-movement structure

Author

Listed:
  • ANNAERT, Jan
  • CLAES, Anouk G.P.
  • DE CEUSTER, Marc J.K.

Abstract

Corporate bonds expose the investor to credit risk, which will be reflected in the credit spread. Based on the EMU Broad Market indices, we study the inter-temporal stability of the covariance and correlation matrices of credit spread changes. Within a multivariate framework, the Box and Jennrich tests are most commonly used test statistics in the literature. However, we show that for small samples these tests are not well specified when the normality assumption is relaxed. A bootstrap-based statistical inference provides evidence that correlations between various (investment grade) credit spread changes remain stable over the 1998-2000 period. Covariances on the other hand, turn out to be time-varying over that period. Classification-JEL G110, G150

Suggested Citation

  • ANNAERT, Jan & CLAES, Anouk G.P. & DE CEUSTER, Marc J.K., 2002. "Inter-temporal stability of the European credit spread co-movement structure," Working Papers 2002008, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2002008
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