Department of Economics and Business Economics

Dynamic Diversification in Corporate Credit

Research output: Working paperResearch

Documents

  • rp13_46

    Submitted manuscript, 866 KB, PDF document

  • Peter Christoffersen, University of Toronto, Canada
  • Kris Jacobs, Universitiy of Houston, United States
  • Xisong Jin, University of Luxembourg, Luxembourg
  • Hugues Langlois, McGill University, Canada
We characterize diversification in corporate credit using a new class of dynamic copula models which can capture dynamic dependence and asymmetry in large samples of firms. We also document important differences between credit spread and equity return dependence dynamics. Modeling a decade of weekly CDS spreads for 215 firms, we find that copula correlations are highly time-varying and persistent, and that they increase significantly in the financial crisis and have remained high since. Perhaps most importantly, tail dependence of CDS spreads increase even more than copula correlations during the crisis and remain high as well. The most important shocks to credit dependence occur in August of 2007 and in August of 2011, but interestingly these dates are not associated with significant changes to median credit spreads.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages44
Publication statusPublished - 19 Dec 2013
SeriesCREATES Research Papers
Number2013-46

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 67740652