Table 8
Regressions of Changes in Absolute Yield Spreads of SCM Long-Term Corporate Bond Indices on
Changes in RRBs and Other Seclected Determinants
Table 8 reports the results of both OLS and AR-GARCH estimation of regression model (4) in which the
dependent variable is the monthly change in the absolute yield spread. This regression model is of the
following form:
δs = β0 + β1∆ Ylt + β2(∆ Ylt)2 + β3∆Slope + β4I + ε,
where ∆S is the monthly change in the absolute yield spread, ∆Ylt is the monthly yield change on the long-
term Government of Canada Real Return Bonds (RBBs), (∆Ylt)2 is a convexity term, ∆Slope is the monthly
change in the spread between the constant maturity long-term Government of Canada index and the three-
month Treasury bill yield, and I is the monthly real 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 OLS estimates for AA, A, BBB bonds, covering the 12:1991-
07:2001 11-year period. Panel B reports the AR-GARCH estimates for AA, A, BBB bonds, covering the
12:1991-07:2001 11-year period.
Panel A: 12:1991-07:2001 OLS
Index |
β 0 |
β1 |
β 2 |
β 3 |
β 4 |
R2 | ||
AA |
-0.0057 (-0.39) |
-0.0491 (-0.18) |
0.4723 |
-0.1030 (-3.86) |
-0.0058 (-1.97) |
- -- - |
0.16 | |
A |
0.0052 |
-0.0200 (-0.23) |
-0.0047 (-0.01) |
-0.0856 |
-0.0051 (-1.87) |
- -- - |
0.13 | |
BBB |
0.0219 |
0.0288 |
-0.7100 (-0.81) |
-0.2510 (-3.74) |
-0.0074 (-0.99) |
- -- - |
0.13 | |
_____________________________Panel B: 12:1991-07:2001 AR-GARCH__________________________ | ||||||||
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 |
AA |
-0.0042 (-0.41) |
0.0389 |
0.4067 |
-0.0988 (-4.19) |
-0.0051 (-1.86) |
1,2 - - - |
0.23 |
0.0005 |
A |
0.0074 |
0.0073 |
-0.1152 (-0.38) |
-0.0904 (-3.75) |
-0.0047 (-1.81) |
1 -- - |
0.17 |
0.0023 |
BBB |
0.0219 |
0.0288 |
-0.7100 (-0.81) |
-0.2510 (-3.74) |
-0.0074 (-0.99) |
- -- - |
0.18 |
- |
42
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