Intertemporal stability of the European credit spread co-movement structure1

Jan Annaert, Anouk Claes and Marc De Ceuster

The European Journal of Finance, 2006, vol. 12, issue 1, 23-32

Abstract: Corporate bonds expose the investor to credit risk, which will be reflected in the credit spread. Based on the EMU Broad Market indices, this paper reports studies of the intertemporal stability of the covariance and correlation matrices of credit spread changes on weekly data. For a multivariate framework, the Box and Jennrich tests are the most commonly used test statistics in the literature. However, it is shown 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 and covariances between various (investment grade) credit spread changes are unstable over the 1998-2003 period.

Keywords: Credit spreads; diversification; correlations; corporate bonds (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/1351847042000304116

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