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European asset swap spreads and the credit crisis

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posted on 2023-06-08, 19:16 authored by Wolfgang Aussenegg, Lukas Götz, Ranko JelicRanko Jelic
We examine time-varying behaviour and determinants of asset swap (ASW) spreads for 23 iBoxx European corporate bond indexes from January 2006 to January 2009. The results of a Markov switching model suggest that ASW spreads exhibit regime-dependent behaviour. The evidence is particularly strong for Financial and Corporates Subordinated indexes. Stock market volatility determines ASW spread changes in turbulent periods, whereas stock returns tend to affect spread changes in calm periods. While market liquidity affects spreads only in turbulent regimes the level of interest rates is an important determinant of spread changes in both regimes. Finally, we identify stock returns, lagged ASW spread levels, and lagged volatility of ASW spreads as major drivers of the regime shifts. The results are robust in the extended sample (January 2006 to October 2013) that includes a post-crisis period.

History

Publication status

  • Published

File Version

  • Published version

Journal

European Journal of Finance

ISSN

1351-847X

Publisher

Taylor & Francis

Issue

7

Volume

22

Page range

572-600

Department affiliated with

  • Business and Management Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2014-12-15

First Open Access (FOA) Date

2016-04-20

First Compliant Deposit (FCD) Date

2014-12-15

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