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Forecasting credit losses with the reversal in credit spreads

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  • Du, Ding

Abstract

López-Salido et al. (2017) find that there is predictable reversal in credit spreads. Because in theory credit spreads reflect expected future credit losses, we explore if the predictable reversal in credit spreads helps forecast loan charge-offs, particularly for big banks. Empirically, we find robust supporting evidence.

Suggested Citation

  • Du, Ding, 2019. "Forecasting credit losses with the reversal in credit spreads," Economics Letters, Elsevier, vol. 178(C), pages 95-97.
    • Handle: RePEc:eee:ecolet:v:178:y:2019:i:c:p:95-97
    DOI: 10.1016/j.econlet.2019.02.010
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    References listed on IDEAS

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    1. David López-Salido & Jeremy C. Stein & Egon Zakrajšek, 2017. "Credit-Market Sentiment and the Business Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1373-1426.
    2. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    3. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
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    Cited by:

    1. Ding Du & Ou Hu, 2020. "Why does stock-market investor sentiment influence corporate investment?," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1221-1246, May.

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    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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