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Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns

Author

Listed:
  • Belén Nieto

    (University of Alicante, San Vicente del Raspeig, 03690 Alicante, Spain)

  • Alfonso Novales

    (University Complutense, Somosaguas, 28040 Madrid, Spain)

  • Gonzalo Rubio

    (University CEU Cardenal Herrera, Elche, 03204 Alicante, Spain)

Abstract

In this paper, we address the issue of how macroeconomic conditions affect corporate bond volatility. We employ the GARCH-MIDAS multiplicative two-component model of volatility that distinguishes the short-term dynamics from the long-run component of volatility. Both the in-sample and out-of-sample analysis show that recognizing the existence of a stochastic low-frequency component captured by macroeconomic and financial indicators may improve the fit of the model to actual bond return data, relative to the constant long-run component embedded in a typical GARCH model.

Suggested Citation

  • Belén Nieto & Alfonso Novales & Gonzalo Rubio, 2015. "Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-41, December.
    • Handle: RePEc:wsi:qjfxxx:v:05:y:2015:i:04:n:s2010139215500214
    DOI: 10.1142/S2010139215500214
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    More about this item

    Keywords

    Corporate bonds; volatility; low-frequency component; high-frequency component; macroeconomic indicators; financial indicators;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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