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Harvard
Subject:
Business & Marketing
Type:
Essay
Language:
English (U.S.)
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Topic:
The Yield Co-movement Among Fixed Income Securities
Essay Instructions:
Essay Sample Content Preview:
Analysis and Discussion of the Yield Co-movement Among Fixed Income Securities
[By:]
[Presented To:]
[Name of Institution:]
[Date]
Introduction
Corporate bonds play a crucial in the external source of finance for the firms. Similar to the other asset prices, the corporate bonds are determined by the profitability of the issuing firms and the macro-economic factors. From a broad perspective, the corporate bond market plays a crucial role in transmitting the monetary policy. The global financial crisis, which started from 2007 to 2009, greatly affected the financial markets of significant economies before the central banks intervened. Afterwards, the major economies monitored the financial markets closely while applying the relevant monetary policies to manage the liquidity level in the markets.
Since the financial market is affected by the industry factors and the macro-economic fundamentals, academicians and researchers have paid much attention to these factors. Many pieces of literature have been added to show the co-movements of different corporate bond yields. Most studies have tried to explain the co-movements of bond yields around the macro-economic news. For instance, Menahem. B., Paolo. P., and Marti. S (2009) looks at the links between the macro-economic news and the bond yields in the USA. The study finds the interaction between the variables to be drive by the fundamentals.
This study analyzes and discusses the co-movement of corporate bond yields in the USA. The five major corporate bond yields in the USA include AAA-rated, A-rated, BBB-rated, B-rated and CCC-rated. The study uses daily data during the 1997-2017 period. The sample period is divided into five sub-periods: 1997-2000, 2001-2006, 2007-2009 (Global financial crisis), 2010-2014 (Euro debt crisis) and 2015-2017 to enable a more refined analysis of the economic periods
The study uses E-views software to do graphical and numerical analysis based on the analytical framework and discussion required. The numerical analysis involves descriptive statistics and correlation coefficient analysis.
Table 1: Descriptive statistics
A
B
AAA
BBB
CCC_OR_BELOW
Mean
4.8531
9.0050
4.3185
5.6281
14.9168
Median
4.7620
8.2630
4.4120
5.6120
12.6410
Maximum
9.4820
22.7200
8.1380
10.1060
42.3480
Minimum
2.3200
5.0840
1.5060
3.1920
7.9620
Std. Dev.
1.6860
2.7961
1.6236
1.6233
5.7888
Skewness
0.1962
1.2632
0.1497
0.3069
1.4294
Kurtosis
1.9015
5.2547
1.8441
2.1905
4.7481
Jarque-Bera
62.1394
523.6294
65.1032
47.1273
512.7705
Probability
0.0000
0.0000
0.0000
0.0000
0.0000
Sum
5319.026
9869.525
4733.042
6168.349
16348.83
Sum Sq. Dev.
3112.605
8560.605
2886.658
2885.277
36693.29
Observations
1096...
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