The impact of stock market volatility on corporate bond credit spreads

Ronald Bewley, David Rees and Paul Berg

Mathematics and Computers in Simulation (MATCOM), 2004, vol. 64, issue 3, 363-372

Abstract: There has been a rapid increase in the number of corporate bonds issued in Australia since the middle of 1998. This increase has stimulated interest in characterising the yield curves and the factors that determine changes in these spreads. The focus of this paper is on measuring any impact of stock market volatility on spreads using two different measures. One measure is based on volatility implied from options prices while the other is derived from a conditional heteroscedastic volatility model of changes in a stock market index. It is found that the former has no significant impact on spreads but the latter is both significant and stable over time. This impact is estimated to be negative implying that an increase in volatility cause a decrease in corporate bond spreads.

Keywords: Forecasting; GARCH; Implied volatility; VAR (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378475403001022
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:matcom:v:64:y:2004:i:3:p:363-372

DOI: 10.1016/S0378-4754(03)00102-2

Access Statistics for this article

Mathematics and Computers in Simulation (MATCOM) is currently edited by Robert Beauwens

More articles in Mathematics and Computers in Simulation (MATCOM) from Elsevier
Bibliographic data for series maintained by Catherine Liu ().