The High-Yield Segment of the Corporate Bond Market: A Diffusion Modelling Approach for the United States, the United Kingdom and the Euro Area

44 Pages Posted: 18 May 2004

See all articles by Gabe de Bondt

Gabe de Bondt

European Central Bank (ECB)

David Marques-Ibanez

European Central Bank (ECB)

Date Written: February 2004

Abstract

This study empirically examines the development of the high-yield segment of the corporate bond market in the United States, as a pioneer country, and the United Kingdom and the euro area, as later adopting countries. Estimated diffusion models show for the United States a significant pioneer influence factor and autonomous speed of diffusion. The latter is found to be higher in Europe than in the United States as also macroeconomic factors are considered. The high-yield bond diffusion pattern is significantly affected by financing need variables, e.g. leverage buy-outs, mergers and acquisitions, and industrial production growth, and return or financing cost variables, e.g. stock market return and the spread between the yield on speculative-grade and BBB-rated investment-grade bonds. These findings suggest that the diffusion of new financial products depends on the macroeconomic environment and can be quickly in case of the diffusion from a pioneer country to later adopting countries.

Keywords: High-yield bond market, financial innovation, diffusion models

JEL Classification: G32, E44

Suggested Citation

de Bondt, Gabe and Marques-Ibanez, David, The High-Yield Segment of the Corporate Bond Market: A Diffusion Modelling Approach for the United States, the United Kingdom and the Euro Area (February 2004). Available at SSRN: https://ssrn.com/abstract=515076 or http://dx.doi.org/10.2139/ssrn.515076

Gabe De Bondt (Contact Author)

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 13440 (Phone)
+44 69 1344 6000 (Fax)

David Marques-Ibanez

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)

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