Announcement Effect on the Credit Spreads of US Dollar Malaysian Bonds

Chee Jin Yap and Gannon Gerard ()
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Gannon Gerard: School of Accounting Economics and Finance, Deakin University, 221 Burwood Highway, Burwood, Victoria 3125, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2011, vol. 14, issue 03, 449-484

Abstract: The main purpose of this paper is to extend the empirical research on the behavior of credit spreads on the USD denominated Malaysian bonds. We find that international political events have more influence on the changes of bond yield spreads from Malaysian USD issues than domestic events. Significant results are consistent across different issues. However, the resignation by the former Prime Minister, Dr Mahathir Mohamad, created a mixed response from the market. Using an error correction model, this study also found that the monetary policy by the US Federal Reserve has a long-term and significant impact on the behavior of the Malaysian USD issues. This study also provides further evidence that the current theoretical framework is sufficient to explain changes in the credit spread of bonds issued by the emerging market.

Keywords: Credit spreads; Malaysia; Mahathir effect (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1142/S0219091511002202

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