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The high-yield segment of the corporate bond market: a diffusion modelling approach for the United States, the United Kingdom and the euro area

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  • de Bondt, Gabe
  • Marqués-Ibáñez, David

Abstract

This study empirically examines the development of the high-yield segment of the corporate bond market in the United States, as a pioneer country, and the United Kingdom and the euro area, as later adopting countries. Estimated diffusion models show for the United States a significant pioneer influence factor and autonomous speed of diffusion. The latter is found to be higher in Europe than in the United States as also macroeconomic factors are considered. The high-yield bond diffusion pattern is significantly affected by financing need variables, e.g. leverage buy-outs, mergers and acquisitions, and industrial production growth, and return or financing cost variables, e.g. stock market return and the spread between the yield on speculative-grade and BBB-rated investment-grade bonds. These findings suggest that the diffusion of new financial products depends on the macroeconomic environment and can be quickly in case of the diffusion from a pioneer country to later adopting countries. JEL Classification: G32, E44

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0313.

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Date of creation: Feb 2004
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Handle: RePEc:ecb:ecbwps:20040313

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Keywords: diffusion models; financial innovation; high-yield bond market;

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Cited by:
  1. Ascari, Guido & Rankin, Neil, 2004. "Perpetual youth and endogenous labour supply: a problem and a possible solution," Working Paper Series 0346, European Central Bank.
  2. Philipp Hartmann & Stefan Straetmans & Casper G. De Vries, 2005. "Banking System Stability: A Cross-Atlantic Perspective," NBER Working Papers 11698, National Bureau of Economic Research, Inc.

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