Table 5
Regressions of Changes in Nominal Yield Spreads of SCM Long-Term Corporate Bond Indices on
Changes in Selected Nominal Determinants -
AR-GARCH Estimation
Table 5 reports the results of the AR-GARCH estimation of regression model (4) in which the dependent
variable is the monthly change in the nominal yield spread. This regression model is of the following
form:
δS = βj + ^'\YLT + β2 (δYLT) + fakSlope + β4I + ε,
where ∆S is the monthly change in the nominal yield spread, ∆Ylt is the monthly change in the nominal
yield on the constant maturity long-term Government of Canada index, (∆Ylt)2 is a convexity term,
∆Slope is the monthly change in the nominal spread between the constant maturity long-term Government
of Canada index and the three-month Treasury bill yield, and I is the monthly nominal return on the
Toronto Stock Exchange 300 index. t-values are in parentheses, m gives the degree of the autoregressive
process as determined by the stepwise autoregression method, p and q are the GARCH(p,q) parameters,
Norm. Test gives the p-value for the normality test for detecting misspecification of the GARCH model,
and finally LM gives the p -value for the Lagrange multiplier test. Panel A reports the estimates for the
entire sample, covering the 08:1976-07:2001 25-year period. Data during this sample period are
dominated by corporate bonds carrying a standard call provision. Panel B outlines the results for the
01:1995-07:2001 sub-period, in which bonds carrying the doomsday call are expected to dominate all
indices.
_____________________Panel A |
: 09:1976-07:2001_____________________________________ | ||||||||||
Regression Coefficients |
AR and GARCH Parameters | ||||||||||
Index |
β 0 |
β1 |
β 2 |
β 3 |
β 4 |
m |
p |
q |
Norm. Test |
R2 |
LM |
AAA |
-0.0101 (-1.51) |
-0.1547 (-11.06) |
0.0614 |
-0.0887 ■ (-7.40) |
-0.0055 (-3.61) |
1, 2, 4 |
1 |
1 |
<0.0001 |
0.22 |
0.0004 |
AA |
-0.0063 (-1.47) |
-0.1196 (-9.67) |
0.0429 |
-0.0679 (-6.90) |
-0.0050 (-4.68) |
1, 2, 4 |
1 |
1 |
0.0018 |
0.23 |
0.0067 |
A |
-0.0067 (-1.07) |
-0.1208 (-8.86) |
0.0600 |
-0.0541 (-5.06) |
-0.0058 (-4.66) |
1, 2 |
1 |
1 |
0.0021 |
0.20 |
<0.0001 |
BBB |
0.0029 |
-0.1467 (-3.82) |
0.0447 |
-0.0701 (-2.67) |
-0.0109 (-3.30) |
- |
1 |
1 |
<0.0001 |
0.15 |
- |
Panel B |
: 01:1995-07:2001 | ||||||||||
Regression Coefficients |
AR and GARCH Parameters |
Goodness of Fit | |||||||||
Index |
β 0 |
β1 |
β 2 |
β 3 |
β 4 |
m |
p |
q |
Norm. Test |
R2 |
LM |
AAA |
N/A | ||||||||||
AA |
-0.0154 (-0.85) |
-0.1676 (-2.02) |
0.2605 |
-0.0041 (-0.08) |
-0.0070 (-2.31) |
- |
- |
- |
- |
0.16 |
- |
A |
-0.0001 (-0.00) |
-0.1817 (-2.29) |
0.0541 |
-0.0041 (-0.08) |
-0.0063 (-2.17) |
- |
- |
- |
- |
0.13 |
- |
BBB |
0.0047 |
0.0510 |
-0.0081 (-0.03) |
0.0141 (0.18) |
-0.0132 (-3.03) |
- |
- |
- |
- |
0.16 |
- |
39
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