Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns.

• Autores: Belén Nieto Domenech, Alfonso Novales Cinca, Gonzalo Rubio Irigoyen
• Localización: Documentos de Trabajo (ICAE), ISSN-e 2341-2356, Nº. 25, 2014, págs. 1-54
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • This paper analyzes the relationship between the volatility of corporate bond returns and standard financial and macroeconomic indicators reflecting the state of the economy. We employ the GARCHMIDAS multiplicative two-component model of volatility that distinguishes the short-term dynamics from the long-run component of volatility. Both the in-sample and out-of-sample analysis show that recognizing the existence of a stochastic low-frequency component captured by macroeconomic and financial indicators may improve the fit of the model to actual bond return data, relative to the constant long-run component embedded in a typical GARCH model.