Detecting time-variation in corporate bond index returns: A smooth transition regression model
This paper investigates the time-varying corporate bond index returns in a multi-factor smooth transition regression model. We find that expected index returns vary between weak and strong economic regimes, where the transition from one regime to the other is governed by the 3-quartered growth of industrial production. Weak economic regimes are characterized by low growth of industrial production, vice versa for strong economic regimes. Further, risk factor sensitivities are generally more negative in strong economic regimes than in weak regimes, implying that index returns are low when economic conditions are good and high when economic conditions are poor.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shiller, Robert J., 1982.
"Consumption, asset markets and macroeconomic fluctuations,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 17(1), pages 203-238, January.
- Robert J. Shiller, 1982. "Consumption, Asset Markets, and Macroeconomic Fluctuations," NBER Working Papers 0838, National Bureau of Economic Research, Inc.
- Elton, Edwin J. & Gruber, Martin J. & Mei, Jianping, 1996. "Return generating process and the determinants of term premiums," Journal of Banking & Finance, Elsevier, vol. 20(7), pages 1251-1269, August.
- Campbell, John Y & Ammer, John, 1993.
" What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns,"
Journal of Finance,
American Finance Association, vol. 48(1), pages 3-37, March.
- Tom Doan, . "RATS programs to replicate Campbell and Ammer's JOF 1993 paper," Statistical Software Components RTZ00029, Boston College Department of Economics.
- John Y. Campbell & John Ammer, 1991. "What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," NBER Working Papers 3760, National Bureau of Economic Research, Inc.
- Campbell, J.Y. & Ammer, J., 1991. "What Moves The Stock And Bond Markets? A Variance Decomposition For Long- Term Asset Returns," Papers 127, Princeton, Department of Economics - Financial Research Center.
- Ammer, John & Campbell, John, 1993. "What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," Scholarly Articles 3382857, Harvard University Department of Economics.
- Maringer Dietmar G. & Meyer Mark, 2008. "Smooth Transition Autoregressive Models -- New Approaches to the Model Selection Problem," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(1), pages 1-21, March.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Ang, Andrew & Piazzesi, Monika, 2003.
"A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables,"
Journal of Monetary Economics,
Elsevier, vol. 50(4), pages 745-787, May.
- Andrew Ang & Monika Piazzesi, 2001. "A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables," NBER Working Papers 8363, National Bureau of Economic Research, Inc.
- Wright, Jonathan H. & Zhou, Hao, 2009. "Bond risk premia and realized jump risk," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2333-2345, December.
- Kessler, Stephan & Scherer, Bernd, 2009. "Varying risk premia in international bond markets," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1361-1375, August.
- Donald B. Keim & Robert F. Stambaugh, .
"Predicting Returns in the Stock and Bond Markets,"
Rodney L. White Center for Financial Research Working Papers
15-85, Wharton School Rodney L. White Center for Financial Research.
- Stefano d'Addona & Axel H. Kind, 2005.
"International Stock-Bond Correlations in a Simple Affine Asset Pricing Model,"
- d'Addona, Stefano & Kind, Axel H., 2006. "International stock-bond correlations in a simple affine asset pricing model," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2747-2765, October.
- van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000.
"Smooth Transition Autoregressive Models - A Survey of Recent Developments,"
SSE/EFI Working Paper Series in Economics and Finance
380, Stockholm School of Economics, revised 17 Jan 2001.
- Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
- van Dijk, D.J.C. & Terasvirta, T. & Franses, Ph.H.B.F., 2000. "Smooth transition autoregressive models - A survey of recent developments," Econometric Institute Research Papers EI 2000-23/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
- Massimo Guidolin & Allan Timmerman, 2005.
"An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns,"
2005-003, Federal Reserve Bank of St. Louis.
- Allan Timmermann & Massimo Guidolin, 2006. "An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 1-22.
- Lekkos, Ilias & Milas, Costas, 2004. "Time-varying excess returns on UK government bonds: A non-linear approach," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 45-62, January.
- Ravn, Morten O & Uhlig, Harald, 2001.
"On Adjusting the HP-Filter for the Frequency of Observations,"
CEPR Discussion Papers
2858, C.E.P.R. Discussion Papers.
- Morten O. Ravn & Harald Uhlig, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CESifo Working Paper Series 479, CESifo Group Munich.
- Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
- Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November.
- Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
- Arturo Estrella & Gikas A. Hardouvelis, 1989.
"The term structure as a predictor of real economic activity,"
8907, Federal Reserve Bank of New York.
- Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
- Hakan Berument & Nildag Basak Ceylan & Hasan Olgun, 2007.
"Inflation uncertainty and interest rates: is the Fisher relation universal?,"
Taylor & Francis Journals, vol. 39(1), pages 53-68.
- Hakan Berument & Hasan Olgun & Basak Ceylan, 2006. "Inflation Uncertainty and Interest Rates : Is The Fisher Relation Universal?," Working Papers 0607, Department of Economics, Bilkent University.
- Greenaway, David & Leybourne, Stephen & Sapsford, David, 1997. "Modeling Growth (and Liberalization) Using Smooth Transitions Analysis," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 798-814, October.
- Michael, Panos & Nobay, A Robert & Peel, David A, 1997.
"Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation,"
Journal of Political Economy,
University of Chicago Press, vol. 105(4), pages 862-79, August.
- Tom Doan, . "RATS programs to replicate Michael-Nobay-Peel ESTAR models," Statistical Software Components RTZ00113, Boston College Department of Economics.
- Yang, Jian & Zhou, Yinggang & Wang, Zijun, 2009. "The stock-bond correlation and macroeconomic conditions: One and a half centuries of evidence," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 670-680, April.
- Kam, C. Chan & H., K. Wu, 1995. "Another look on bond market seasonality: a note," Journal of Banking & Finance, Elsevier, vol. 19(6), pages 1047-1054, September.
- Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June.
- Abhyankar, Abhay & Gonzalez, Angelica, 2009. "News and the cross-section of expected corporate bond returns," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 996-1004, June.
- Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
- Chelley-Steeley, Patricia L., 2005. "Modeling equity market integration using smooth transition analysis: A study of Eastern European stock markets," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 818-831, September.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:35:y:2011:i:1:p:95-103. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.