RT Journal Article
SR Electronic
T1 Investigating Long Memory in Yield Spreads
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 73
OP 81
DO 10.3905/JFI.2009.19.1.073
VO 19
IS 1
A1 Joseph McCarthy
A1 Coleen Pantalone
A1 H.C Li
YR 2009
UL https://pm-research.com/content/19/1/73.abstract
AB This article investigates the presence of long memory in bond yield spreads, looking at the spread between Moody’s Baa and Aaa corporate bond yields as well as the spread between each of these series and the 10-year Treasury bond yield. Using the aggregated series and wavelet OLS estimator methods, the authors test the hypothesis that yield spreads follow a fractionally integrated process. We find significant evidence of the presence of long memory in these spreads, which suggests that a time element exists and should be accounted for when analyzing yield spreads, making investment allocation decisions, or using yield spreads as forecasting tools.TOPICS: Fixed-income portfolio management, big data/machine learning, analysis of individual factors/risk premia