Corporate Bond Risk and Real Activity An Empirical Analysis of Yield Spreads and Their Systematic Components |
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Author:
| Ivaschenko, Iryna V. Chan-Lau, Jorge A. |
Series title: | IMF Working Papers |
ISBN: | 978-1-4623-2565-8 |
Publication Date: | Oct 2001 |
Publisher: | International Monetary Fund
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Book Format: | Ebook |
List Price: | USD $7.50 |
Book Description:
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This paper finds that the yield spread of investment-grade bonds relative to Treasuries, a proxy of default risk, predicts marginal changes in industrial production in the United States up to 12 months in the future, even upon controlling for a commonly used predictor such as the commercial paper spread. the paper also finds that systematic risk factors associated with the yield spread of investment-grade bonds to a variety of risk-free benchmarks - Treasuries, agency bonds, and...
More DescriptionThis paper finds that the yield spread of investment-grade bonds relative to Treasuries, a proxy of default risk, predicts marginal changes in industrial production in the United States up to 12 months in the future, even upon controlling for a commonly used predictor such as the commercial paper spread. the paper also finds that systematic risk factors associated with the yield spread of investment-grade bonds to a variety of risk-free benchmarks - Treasuries, agency bonds, and AAA-rated bonds - have significant predictive content for future growth rate of industrial production at 3 to 18 months forecasting horizon, both in- and out-of-sample. Finally, a regime-switching estimation shows that the systematic risk component is also able to capture industrial production business cycle well.