Volatilities, drifts and the relation between treasury yields and the corporate bond yield spread in australia

Sune Karlsson () and Pär Österholm

Finance Research Letters, 2019, vol. 30, issue C, 378-384

Abstract: We estimate Bayesian VAR models in order to investigate the relation between Treasury yields and the corporate bond yield spread in Australia. Recent developments in Bayesian model selection allow us to formally assess the relevance of stochastic volatility and drifting parameters. A model comparison indicates that a model with stochastic volatility and constant parameters is preferred. Our results imply that while previous studies may have relied on empirically flawed models, their main conclusion – namely that an increase in the risk free rate decreases the corporate bond yield spread – appears to be an empirically robust finding.

Keywords: Bayesian vector autoregressions; Credit spreads (search for similar items in EconPapers)
JEL-codes: C32 E44 G10 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612318305622
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:30:y:2019:i:c:p:378-384

DOI: 10.1016/j.frl.2018.11.003

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().