Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns

Belén Nieto (), Alfonso Novales and Gonzalo Rubio
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Belén Nieto: University of Alicante, San Vicente del Raspeig, 03690 Alicante, Spain
Gonzalo Rubio: University CEU Cardenal Herrera, Elche, 03204 Alicante, Spain

Quarterly Journal of Finance (QJF), 2015, vol. 05, issue 04, 1-41

Abstract: In this paper, we address the issue of how macroeconomic conditions affect corporate bond volatility. We employ the GARCH-MIDAS multiplicative two-component model of volatility that distinguishes the short-term dynamics from the long-run component of volatility. Both the in-sample and out-of-sample analysis show that recognizing the existence of a stochastic low-frequency component captured by macroeconomic and financial indicators may improve the fit of the model to actual bond return data, relative to the constant long-run component embedded in a typical GARCH model.

Keywords: Corporate bonds; volatility; low-frequency component; high-frequency component; macroeconomic indicators; financial indicators (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Working Paper: Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns (2014)
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DOI: 10.1142/S2010139215500214

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