On Estimating the Relation between Corporate Bond Yield Spreads and Treasury Yields

33 Pages Posted: 18 Jun 2002

See all articles by Gady Jacoby

Gady Jacoby

College of Management Academic Studies; University of Manitoba - Department of Accounting and Finance; Seton Hall University

Date Written: January 2002

Abstract

Using a simple theoretical framework, we issue two warnings with respect to the estimation of the yield spread - riskless rate relation. The first warning relates to Longsta and Schwartz's regression analysis applied to relative yield spreads. The second warning is closely related to Duffee's (1998) caution against interpreting results of yield-spread studies based on data sets, such as that used by Longstaand Schwartz (1995), consisting primarily of callable bonds. We provide strong support for both warnings using a data base of Canadian, investment grade, corporate bond indices containing a unique provision allowing to identify callable and noncallable indices.

Suggested Citation

Jacoby, Gady and Jacoby, Gady, On Estimating the Relation between Corporate Bond Yield Spreads and Treasury Yields (January 2002). Available at SSRN: https://ssrn.com/abstract=314370 or http://dx.doi.org/10.2139/ssrn.314370

Gady Jacoby (Contact Author)

College of Management Academic Studies ( email )

Elie Wiesel St 2
Rishon LeTsiyon
Israel

University of Manitoba - Department of Accounting and Finance

Faculty of Management
Winnipeg, MB R3T 5V4
Canada

Seton Hall University ( email )

400 S Orange Avenue
South Orange, NJ 07079
United States

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