Dynamic Dependence and Diversification in Corporate Credit

Peter Christoffersen, Kris Jacobs, Xisong Jin, Hugues Langlois

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We characterize dependence in corporate credit and equity returns for 215 firms using a new class of large-scale dynamic copula models. Copula dependence and especially tail dependence are highly variable and persistent, increase significantly in the financial crisis, and have remained high since. The most drastic increases in credit dependence occur in July/August of 2007 and in August of 2011 and the decrease in diversification potential caused by the increases in dependence and tail dependence is large. Credit default swap correlation dynamics are important determinants of credit spreads.
Original languageEnglish
JournalReview of Finance
Volume22
Issue number2
Pages (from-to)521-560
Number of pages40
ISSN1572-3097
DOIs
Publication statusPublished - 2018

Keywords

  • Asset pricing
  • Trading volume
  • Bond interest rates

Cite this

Christoffersen, Peter ; Jacobs, Kris ; Jin, Xisong ; Langlois, Hugues. / Dynamic Dependence and Diversification in Corporate Credit. In: Review of Finance. 2018 ; Vol. 22, No. 2. pp. 521-560.
@article{958e51ad017c45aa88c065611f211bf5,
title = "Dynamic Dependence and Diversification in Corporate Credit",
abstract = "We characterize dependence in corporate credit and equity returns for 215 firms using a new class of large-scale dynamic copula models. Copula dependence and especially tail dependence are highly variable and persistent, increase significantly in the financial crisis, and have remained high since. The most drastic increases in credit dependence occur in July/August of 2007 and in August of 2011 and the decrease in diversification potential caused by the increases in dependence and tail dependence is large. Credit default swap correlation dynamics are important determinants of credit spreads.",
keywords = "Asset pricing, Trading volume, Bond interest rates, Asset pricing, Trading volume, Bond interest rates",
author = "Peter Christoffersen and Kris Jacobs and Xisong Jin and Hugues Langlois",
year = "2018",
doi = "10.1093/rof/rfx034",
language = "English",
volume = "22",
pages = "521--560",
journal = "Review of Finance",
issn = "1572-3097",
publisher = "Oxford University Press",
number = "2",

}

Dynamic Dependence and Diversification in Corporate Credit. / Christoffersen, Peter ; Jacobs, Kris; Jin, Xisong; Langlois, Hugues.

In: Review of Finance, Vol. 22, No. 2, 2018, p. 521-560.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Dynamic Dependence and Diversification in Corporate Credit

AU - Christoffersen, Peter

AU - Jacobs, Kris

AU - Jin, Xisong

AU - Langlois, Hugues

PY - 2018

Y1 - 2018

N2 - We characterize dependence in corporate credit and equity returns for 215 firms using a new class of large-scale dynamic copula models. Copula dependence and especially tail dependence are highly variable and persistent, increase significantly in the financial crisis, and have remained high since. The most drastic increases in credit dependence occur in July/August of 2007 and in August of 2011 and the decrease in diversification potential caused by the increases in dependence and tail dependence is large. Credit default swap correlation dynamics are important determinants of credit spreads.

AB - We characterize dependence in corporate credit and equity returns for 215 firms using a new class of large-scale dynamic copula models. Copula dependence and especially tail dependence are highly variable and persistent, increase significantly in the financial crisis, and have remained high since. The most drastic increases in credit dependence occur in July/August of 2007 and in August of 2011 and the decrease in diversification potential caused by the increases in dependence and tail dependence is large. Credit default swap correlation dynamics are important determinants of credit spreads.

KW - Asset pricing

KW - Trading volume

KW - Bond interest rates

KW - Asset pricing

KW - Trading volume

KW - Bond interest rates

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=111082135093056&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1093/rof/rfx034

DO - 10.1093/rof/rfx034

M3 - Journal article

VL - 22

SP - 521

EP - 560

JO - Review of Finance

JF - Review of Finance

SN - 1572-3097

IS - 2

ER -