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Relations between Corporate Credit Spreads,Treasury Yields and the Equity Market

Author

Listed:
  • Anthony Miloudi
  • Franck Moraux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper examines complex relations existing between corporate credit spread indicesand the Treasury and Equity markets. A cointegration analysis reveals that a long runrelation exists and that some of these connections are credit sensitive. Mainly, itappears that the equilibrium elasticity of credit spread indices to the stock market is afunction of the credit risk. Modelling further credit spread dynamics, we find that dailyrebalancing of credit portfolios appears justified but the ECM specification suggeststhat the one-day lagged deviation from the equilibrium relationship has only a limitedeffect. We finally highlight and discuss the lead-lag structure of markets and theassociated causal transmission patterns.

Suggested Citation

  • Anthony Miloudi & Franck Moraux, 2009. "Relations between Corporate Credit Spreads,Treasury Yields and the Equity Market," Post-Print halshs-00391567, HAL.
    • Handle: RePEc:hal:journl:halshs-00391567
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    Cited by:

    1. Chi-Fai Lo & Cho-Hoi Hui, 2016. "Pricing corporate bonds with interest rates following double square-root process," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1-31, September.
    2. Abdymomunov, Azamat & Kang, Kyu Ho & Kim, Ki Jeong, 2016. "Can credit spreads help predict a yield curve?," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 39-61.
    3. Chi-Fai Lo & Cho-Hoi Hui, 2016. "Pricing Corporate Bonds With Interest Rates Following Double Square-root Process," Working Papers 112016, Hong Kong Institute for Monetary Research.

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