RT Report
T1 Spurious Cross-Sectional Dependence in Credit Spread Changes
A1 Jaskowski, Marcin
A1 McAleer, Michael
AB 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.
SN 2341-2356
YR 2018
FD 2018-09
LK https://hdl.handle.net/20.500.14352/17438
UL https://hdl.handle.net/20.500.14352/17438
LA eng
NO Acknowledgments: For financial and research support, the second author wishes to thank the Australian Research Counciland the Ministry of Science and Technology (MOST), Taiwan.
NO the Australian Research Council
NO the Ministry of Science and Technology (MOST), Taiwan.
DS Docta Complutense
RD 12 may 2025