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Asymmetric determinants of corporate bond credit spreads in China: Evidence from a nonlinear ARDL model

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  • Li, Xiao-Lin
  • Li, Xin
  • Si, Deng-Kui

Abstract

This study utilizes the nonlinear ARDL (NARDL) model proposed by Shin, Yu, and Greenwood-Nimmo (2014) to quantify the potentially asymmetric transmission of positive and negative changes in each of the possible determinants of industry-level corporate bond credit spreads in China. The determinants we consider include the corresponding industry stock price, China’s stock market volatility, the level and slope of the yield curve (i.e., the interest rate), the industrial production growth rate, and the inflation rate. The empirical results suggest substantial asymmetric effects of these determinants on credit spreads, with the positive changes in the determinants showing larger impacts than the negative changes for most industries we consider. Moreover, the corresponding industry stock prices, the interest rate, and the industrial production growth rate negatively drive the industry credit spreads for many industries. In turn, China’s stock market volatility and the inflation rate positively affect the credit spreads at each industry level. These findings may be helpful to investors, bond issuers and policymakers in understanding the dynamics of credit risks and corporate bond rates at the industry level.

Suggested Citation

  • Li, Xiao-Lin & Li, Xin & Si, Deng-Kui, 2020. "Asymmetric determinants of corporate bond credit spreads in China: Evidence from a nonlinear ARDL model," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940819302700
    DOI: 10.1016/j.najef.2019.101109
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    More about this item

    Keywords

    Corporate bond; Credit spreads; Credit risk; Asymmetry; NARDL model;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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