A Pure Test for the Elasticity of Yield Spreads

Table A.1

Regressions of Changes in Absolute Yield Spreads of SCM Long-Term
Corporate Bond Indices on Changes in the Yield of the Constant Maturity Long-
Term Government of Canada Index and the Return on the Toronto Stock
Exchange 300 Index - AR-GARCH Estimation

Table A.1 reports the results of the AR-GARCH estimation of regression model (1) in
which the dependent variable is the monthly change in the absolute yield spread. This
regression model is of the following form:

∆ 5^, = a + b ∆ Y + cI + ε,                               .

where ∆.S' is the monthly change in the absolute yield spread, ∆Y is the monthly:
change in the yield of the constant maturity, long-term Government of Canada index,
and I is the monthly 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.

44

<<   <   44   45   46   47   48   49   50   >   >>