Relations between Corporate Credit Spreads,Treasury Yields and the Equity Market

Anthony Miloudi () and Franck Moraux ()

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Abstract: This paper examines complex relations existing between corporate credit spread indicesand the Treasury and Equity markets. A cointegration analysis reveals that a long runrelation exists and that some of these connections are credit sensitive. Mainly, itappears that the equilibrium elasticity of credit spread indices to the stock market is afunction of the credit risk. Modelling further credit spread dynamics, we find that dailyrebalancing of credit portfolios appears justified but the ECM specification suggeststhat the one-day lagged deviation from the equilibrium relationship has only a limitedeffect. We finally highlight and discuss the lead-lag structure of markets and theassociated causal transmission patterns.

Keywords: Cointegration analysis; Credit spreads; Equity market; Long run relation; Short term dynamics; Treasury market (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

Published in International Journal of Business, 2009, 14 (2), pp.105-122

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00391567

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