Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns.
- Nieto Domenech, Belén
- Novales Cinca, Alfonso
- Rubio Irigoyen, Gonzalo
ISSN: 2341-2356
Year of publication: 2014
Issue: 25
Pages: 1-54
Type: Working paper
More publications in: Documentos de Trabajo (ICAE)
Sustainable development goals
Abstract
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.
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