Seminars for 2012/13
28 November 2007: Time-varying Corporate Bond Indices Returns: A Non-linear Approach (RSS)
Xiaohua Chen from University of Essex
At 16:00 in 5N.4.8.
The paper examines the time-varying corporate bond index returns across business cycle in a smooth threshold regime-switching framework by using differential evolution optimization method. We ?nd the dynamics of the excess returns on US corporate bond indices are characterised by regime-switching behaviour where the transition from weak economic condition to strong economic condition is controlled by excess return on stock index. The betas of the risk factors, i.e. default spread, term spread, dividend yield and excess return on stock index vary between two regimes, implying that both the beta and risk premia contribute to the time-varying bond index returns. In addition, the betas in magnitude of some risk factors, i.e. default spread and dividend yield vary across different rating bond indices in each regime.
Further information can be found at: /economics/pdfs/papers/Chen XiaoHua - 28 Nov 2007.pdf
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