IDEAS home Printed from https://ideas.repec.org/a/ibg/eajour/v47y2014i3-4p53-68.html
   My bibliography  Save this article

Credit Spread Modeling: Macro-financial versus HOC Approach

Author

Listed:
  • Sanja Dudakovic

    (Franklin University Switzerland)

Abstract

The aim of this paper is to throw light on the relationship between credit spread changes and past changes of U.S. macro-financial variables when invariants do not have Gaussian distribution. The first part presents the empirical analysis which is based on 10-year AAA corporate bond yields and 10-year Treasury bond yields. Explanatory variables include lagged U.S. leading index, Russell 2000 returns, BBB bond price changes interest rate swaps, exchange rates EUR/ USD, Repo rates, S& P 500 returns and S&P 500 volatility, Treasury bill changes, liquidity index-TRSW, LIBOR rates, Moody’s default rates; credit spread volatility and Treasury bills volatility. The proposed dynamical model explains 73% of the U.S. credit spread variance for the period 1999:07-2013:07. The second part of the article introduces the parameter estimation method based on higher order cumulants. It is demonstrated empirically that much of the information about variability of Credit Spread can be extracted from higher order cumulant function (85%).

Suggested Citation

  • Sanja Dudakovic, 2014. "Credit Spread Modeling: Macro-financial versus HOC Approach," Economic Analysis, Institute of Economic Sciences, vol. 47(3-4), pages 53-68.
  • Handle: RePEc:ibg:eajour:v:47:y:2014:i:3-4:p:53-68
    as

    Download full text from publisher

    File URL: http://www.ien.bg.ac.rs/index.php/en/2014/2014-3-4
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Credit Spread Modeling; ARMA Parameter estimation; Higher Order Cumulants; Non Gaussian ARMA models; Dynamic regression;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibg:eajour:v:47:y:2014:i:3-4:p:53-68. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Zorica Bozic (email available below). General contact details of provider: https://edirc.repec.org/data/ienbgyu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.