A Markov switching unobserved component analysis of the CDX index term premium |
| |
| Institution: | 1. School of Business and Economics, Loughborough University, United Kingdom;2. Department of Economics, University of Bath, United Kingdom;3. Aviva plc, London, United Kingdom;1. School of Economics and Finance, College of Business, Massey University, Private Bag 11222, Palmerston North 4442, New Zealand;2. Department of Economics, Aristotle University, Thessaloniki 54124, Greece;1. Department of Economics, University of Copenhagen, 5 Øster Farimagsgade, DK-1353, Copenhagen Denmark;2. Department of Economics, Monash University, Australia;1. ETH Zurich, Department of Management, Technology, and Economics, Scheuchzerstrasse 7,Zurich 8092 , Switzerland;2. Swiss Finance Institute, c/o University of Geneva, Switzerland |
| |
| Abstract: | Using a Markov switching unobserved component model we decompose the term premium of the North American CDX index into a permanent and a stationary component. We establish that the inversion of the CDX term premium is induced by sudden changes in the unobserved stationary component, which represents the evolution of the fundamentals underpinning the probability of default in the economy. We find evidence that the monetary policy response from the Fed during the crisis period was effective in reducing the volatility of the term premium. We also show that equity returns make a substantial contribution to the term premium over the entire sample period. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
