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Intertemporal stability of the European credit spread co-movement structure1

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  • Jan Annaert
  • Anouk Claes
  • Marc De Ceuster
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    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.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 12 (2006)
    Issue (Month): 1 ()
    Pages: 23-32

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    Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:23-32

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    Related research

    Keywords: Credit spreads; diversification; correlations; corporate bonds;

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    Cited by:
    1. Marie Briere & Ariane Chapelle & Ariane Szafarz, 2012. "No contagion, only globalization and flight to quality," Working Papers CEB 12-010, ULB -- Universite Libre de Bruxelles.

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