This paper investigates liquidity shocks on the US corporate bond market around credit rating change announcements. These shocks may be induced by the information content of the announcement itself, and abnormal trading activity can be... more
This paper investigates liquidity shocks on the US corporate bond market around credit rating change announcements. These shocks may be induced by the information content of the announcement itself, and abnormal trading activity can be triggered by the release of information after any upgrade or downgrade. Our findings show that: (1) the market anticipates rating changes, since trends liquidity proxies prelude the event, and additionally, large volume transactions are detected the day before the downgrade; (2) the concrete materialization of the announcement is not fully anticipated, since we only observe price overreaction immediately after downgrades; (3) a clear asymmetric reaction to positive and negative rating events is observed; (4) different agency-specific and rating-specific features are able to explain liquidity behavior around rating events; (5) financial distress periods exacerbate liquidity responses derived from downgrades and upgrades.
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Financial literature and financial industry use often zero coupon yield curves as input for testing hypotheses, pricing assets or managing risk. They assume this provided data as accurate. We analyse implications of the methodology and of... more
Financial literature and financial industry use often zero coupon yield curves as input for testing hypotheses, pricing assets or managing risk. They assume this provided data as accurate. We analyse implications of the methodology and of the sample selection criteria used to estimate the zero coupon bond yield term structure on the resulting volatility of spot rates with different maturities. We obtain the volatility term structure using historical volatilities and Egarch volatilities. As input for these volatilities we consider our own spot rates estimation from GovPX bond data and three popular interest rates data sets: from the Federal Reserve Board, from the US Department of the Treasury (H15), and from Bloomberg. We find strong evidence that the resulting zero coupon bond yield volatility estimates as well as the correlation coefficients among spot and forward rates depend significantly on the data set. We observe relevant differences in economic terms when volatilities are us...
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En este trabajo se analiza la relación entre liquidez y edad de los activos de renta fija. En este sentido se estudian los efectos del envejecimiento de los bonos sobre su volumen y frecuencia de negociación encontrando unos diferenciales... more
En este trabajo se analiza la relación entre liquidez y edad de los activos de renta fija. En este sentido se estudian los efectos del envejecimiento de los bonos sobre su volumen y frecuencia de negociación encontrando unos diferenciales de rentabilidad significativos entre el rendimiento de los bonos recién emitidos y de los bonos más antiguos con un plazo hasta la amortización similar. Asimismo, se estima el diferencial de rentabilidad entre un bono dado que se negocia en diferentes mercados; observando cómo este diferencial es mayor cuanto más viejo es el bono. Estas relaciones entre liquidez y edad, y por tanto, entre rendimientos y edad conducen a una estructura temporal de las primas de liquidez decrecientes.
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In recent years, we have learned much about modelling term struc-tures subject to credit risk. However, there is little empirical work re-garding such basic issues as the relative importance of different parameters, describing credit risk... more
In recent years, we have learned much about modelling term struc-tures subject to credit risk. However, there is little empirical work re-garding such basic issues as the relative importance of different parameters, describing credit risk and whether correlation between credit risk and pure (default-free) interest rates really matters. Indeed, we do not know if we should not parameterise credit risk at all and instead apply pure interest rate modelling methods directly to interest rates subject to credit risk. We address these questions by implementing binomial stochastic process-es for pure rates of interest and credit risk in an arbitrage-free framework. The resulting models yield replicating portfolios of state prices (synthetic corporate zeros) that can be used to price credit derivatives. Since the whole point of modelling credit risk is to obtain accurate prices, we examine how different stochastic processes change the distribution of state prices and therefore credit derivati...
We analyse the strong effect of tax on trade of bonus securities. We get average yield spreads against Treasury bonds for bonus of “1.2%” and “25c1” modalities during the period within years 1993 and 1997. Also we estimate tax premium... more
We analyse the strong effect of tax on trade of bonus securities. We get average yield spreads against Treasury bonds for bonus of “1.2%” and “25c1” modalities during the period within years 1993 and 1997. Also we estimate tax premium between bonus and not bonus issues of electric companies. On the other hand, we study causes and effects on their yield and their consequences in trade volume of coupon laundering operations.
The influence of rating announcements on corporate debt market trading has been previously overlooked. Based on an event study, we examine the effects of the three types of announcements provided by credit rating agencies on abnormal... more
The influence of rating announcements on corporate debt market trading has been previously overlooked. Based on an event study, we examine the effects of the three types of announcements provided by credit rating agencies on abnormal trading volume and trading frequency in the Spanish corporate debt market. Additionally, by means of cross-section regressions, we establish what factors determine the sign and intensity of the trading reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.
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Page 1. On Modelling Credit Risk Using Arbitrage Free Models * Frank S. Skinner Antonio Díaz June 12, 1998 Revised Nov 27, 1998, April 1999, March 2000 This Version, December 2000 JEL Classification: G13 Key Words ...
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The influence of rating announcements on corporate debt market liquidity has been ignored for a long time. Based on an event study, this article examines the effects of the announcements of actual rating changes, outlook notices, and... more
The influence of rating announcements on corporate debt market liquidity has been ignored for a long time. Based on an event study, this article examines the effects of the announcements of actual rating changes, outlook notices, and CreditWatch placements provided by Moody's, Standard and Poor's and Fitch on abnormal liquidity in the Spanish corporate debt market. Also, by means of cross-section regressions, we establish what factors determine the sign and intensity of the liquidity reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.
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We study the short run response of daily stock prices on the Spanish market to the announcements of inflation news at an industrial level, deepening the potential explanatory factors of this response (risk-free interest rate, risk premium... more
We study the short run response of daily stock prices on the Spanish market to the announcements of inflation news at an industrial level, deepening the potential explanatory factors of this response (risk-free interest rate, risk premium and growth expectations). We observe a positive and significant response of the stock returns in case of “bad news” (total inflation rate higher
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I analyze implicit transaction costs of trading government debt securities on the Spanish stock exchanges (SE) electronic trading system. The SE’s multilateral system is used mainly as an outlet for retail investors to liquidate Treasury... more
I analyze implicit transaction costs of trading government debt securities on the Spanish stock exchanges (SE) electronic trading system. The SE’s multilateral system is used mainly as an outlet for retail investors to liquidate Treasury accounts positions before maturity. I compare identical Treasury security trades on the same day in two different markets: the SE and the interdealer market. By analyzing these yield spreads I learn more about the behavior of the markdowns included in the retail prices from the institutional prices. I find evidence that these yield premia depend on traditional features to explain wholesale market liquidity premia.