Factors affecting the yields on noninvestment grade bond indices: a cointegration analysis |
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| Institution: | 1. The George Washington University, Department of Finance, Washington, DC, USA;2. The George Washington University, Department of Economics, 2201 G. Street NW, Washington, DC 20052, USA;3. Texas Tech University, Department of Finance, Lubbock, TX, USA;1. Warsaw University of Technology, Faculty of Environmental Engineering, Warsaw, Poland;2. Military Institute of Medicine, Central Clinical Hospital of the Ministry of National Defence, Warsaw, Poland;3. Gdynia Maritime University, Department of Information Systems, Gdynia, Poland;4. Warsaw University of Life Sciences, Faculty of Civil and Environmental Engineering, Warsaw, Poland;5. Polish Federation of Asthma, Allergy and COPD Patients’ Associations, Warsaw, Poland;1. Finance Center Münster, University of Münster, Universitätsstr. 14-16, D-48143 Münster, Germany;2. Department of Insurance and Risk Management, University Duisburg-Essen, Lotharstr. 65, D-47451 Duisburg, Germany;1. Musculoskeletal Rehabilitation Research Center, Ahvaz Jundishapur University of Medical Sciences, Ahvaz, Iran;2. Health Research Institute, Diabetes Research center, Ahvaz Jundishapur University of Medical Sciences, Ahvaz, Iran;3. Department of Anesthesiology, Ahvaz Jundishapur University of Medical Sciences, Ahvaz, Iran |
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| Abstract: | This study examines the long- and short-run dynamics of the yields on noninvestment grade indices. Utilizing cointegration techniques, the traditional yield spread model is found to be inadequate. A revised model finds a long-run relationship between noninvestment grade yields, Treasury securities, and default rates. Error correction models are formulated to model the short-run dynamics of different segments of the market. These models include a long-run equilibrium (between yields, default rates, and Treasuries), mutual fund flows, minor bond ratings, debt subordination measures, a stock index, and a January effect. Segmentation in the noninvestment grade market is also demonstrated. |
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