Forecasting the Quality Spread Using Business Cycle Indicators

12 Pages Posted: 16 Apr 2001

See all articles by Debashis Guha

Debashis Guha

S P Jain School of Global Management; Big Sky Quantitative Research

Lorene Hiris

Long Island University - Department of Finance

Dimitra Visviki

Economic Cycle Research Institute, N.Y.

Date Written: undated

Abstract

The spread between yields on corporate bonds of differing quality is one of the most important measures of the aggregate level of credit risk in the economy and has been widely used as an indicator of overall economic activity and of stock prices. It has also assumed considerable importance in recent years as a fundamental determinant of the profitability of complex investment strategies that depend upon the convergence of yields on securities with different credit risk. A good forecast of the quality spread is likely to be very useful both for economic forecasting and for investment management. In this paper we find a way to forecast the quality spread by utilizing the idea that the magnitude of the quality spread varies with fluctuations in overall economic activity and hence business cycle indicators are likely to contain information about the future evolution of the spread.

Suggested Citation

Guha, Debashis and Guha, Debashis and Hiris, Lorene and Visviki, Dimitra, Forecasting the Quality Spread Using Business Cycle Indicators (undated). Available at SSRN: https://ssrn.com/abstract=267004 or http://dx.doi.org/10.2139/ssrn.267004

Debashis Guha (Contact Author)

S P Jain School of Global Management ( email )

1st Floor - Kohinoor City Mall, Gate No. 1
Kurla West
Mumbai, 400070
India

Big Sky Quantitative Research ( email )

Richmond Tower, # 310
12 Richmond Road
Bangalore, Karnataka 560025
India

Lorene Hiris

Long Island University - Department of Finance ( email )

720 Northern Blvd.
Brookville, NY 11548
United States
(516) 299-2555 (Phone)
(516) 299-3925 (Fax)

Dimitra Visviki

Economic Cycle Research Institute, N.Y. ( email )

420 Lexington Avenue, Suite 1645
New York, NY
United States
(212) 557-7788 (Phone)
(212) 557-9874 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
642
Abstract Views
3,914
Rank
76,103
PlumX Metrics