Spurious Cross-Sectional Dependence in Credit Spread Changes
In order to understand the lingering credit risk puzzle and the apparent segmentation of the stock market from credit markets, we need to be able to assess the strength of the cross-sectional dependence in credit spreads. This turns out to be a non-trivial task due to the extreme data sparsity that...
| Autores: | , |
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| Tipo de recurso: | informe técnico |
| Fecha de publicación: | 2018 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | inglés |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/17438 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/17438 |
| Access Level: | acceso abierto |
| Palabra clave: | G12 G13 G17 E43 Credit spread puzzle Market segmentation Latent factors Spurious cross-sectional dependence. Econometría (Economía) Finanzas 5302 Econometría |
| Sumario: | In order to understand the lingering credit risk puzzle and the apparent segmentation of the stock market from credit markets, we need to be able to assess the strength of the cross-sectional dependence in credit spreads. This turns out to be a non-trivial task due to the extreme data sparsity that is typical for any panel of credit spreads that is extracted from corporate bond transactions. The problem of data sparsity has led to some erroneous conclusions in the literature, including inferences that have been drawn from spurious cross-sectional dependence in credit spread changes. Understanding the pitfalls leads to a new and improved estimator of the latent factor in credit spread changes and its characteristics. |
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