Sticky credit spreads, macroeconomic activity and equity market volatility

Yan Li, James M. Steeley*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

We uncover high persistence in credit spread series that can obscure the relationship between the theoretical determinants of credit risk and observed credit spreads. We use a Markovswitching model, which also captures the stability (low frequency changes) of credit ratings, to show why credit spreads may continue to respond to past levels of credit risk, even though the state of the economy has changed. A bivariate model of credit spreads and either macroeconomic activity or equity market volatility detects large and significant correlations that are consistent with theory but have not been observed in previous studies. © 2010 Nova Science Publishers, Inc. All rights reserved.

Original languageEnglish
Title of host publicationFinance and banking developments
EditorsCharles V. Karsone
Place of PublicationNew York (US)
PublisherNova science
Pages43-74
Number of pages32
ISBN (Electronic)978-1-61122-928-8
ISBN (Print)978-1-60876-329-0
Publication statusPublished - 2010

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macroeconomics
credit
equity
market
persistence
rating
determinants
economy

Cite this

Li, Y., & Steeley, J. M. (2010). Sticky credit spreads, macroeconomic activity and equity market volatility. In C. V. Karsone (Ed.), Finance and banking developments (pp. 43-74). New York (US): Nova science.
Li, Yan ; Steeley, James M. / Sticky credit spreads, macroeconomic activity and equity market volatility. Finance and banking developments. editor / Charles V. Karsone. New York (US) : Nova science, 2010. pp. 43-74
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Li, Y & Steeley, JM 2010, Sticky credit spreads, macroeconomic activity and equity market volatility. in CV Karsone (ed.), Finance and banking developments. Nova science, New York (US), pp. 43-74.

Sticky credit spreads, macroeconomic activity and equity market volatility. / Li, Yan; Steeley, James M.

Finance and banking developments. ed. / Charles V. Karsone. New York (US) : Nova science, 2010. p. 43-74.

Research output: Chapter in Book/Report/Conference proceedingChapter

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Li Y, Steeley JM. Sticky credit spreads, macroeconomic activity and equity market volatility. In Karsone CV, editor, Finance and banking developments. New York (US): Nova science. 2010. p. 43-74