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What is Markov-Switching in Default Spreads Model about?

The document examines how a reduced form model with observed macroeconomic factors following a Markov-switching process can explain corporate bond yield spreads over time. It finds that macroeconomic factors are linked to two out of three sharp increases in spreads during the sample period, indicating spread variations can relate to undiversifiable macroeconomic risk. However, not all sharp increases are captured, such as in 2001, since that period involved a different macroeconomic regime than the model id

Author

gogayin869

Language

EN