Spurious Cross-Sectional Dependence in Credit Spread Changes

• Published in: IDEAS Working Paper Series from RePEc
• Main Authors: Jaskowski, M, McAleer, MJ
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2018
• Subjects: Bond issues; Purchasing power parity; Sparsity

In order to understand the lingering credit risk puzzle and the apparent segmentation of the stock market from credit markets, we need to be able to assess the strength of the cross-sectional dependence in credit spreads. This turns out to be a non-trivial task due to the extreme data sparsity that...