Does High-yield Bond Market Contain Default Risk Information for Non-performing Loans?

  • 何 宜靜

Student thesis: Master's Thesis

Abstract

This study attempts to explore the information transmission between the bond market and the loan market Bank loan loss provisions are a discretionary accrual that refers to the probability of bad loans on the loan market and non-performing loans are an example of non-discretionary accrual that implies the default risk of loans In addition the CCC spread proxy to the default risk of the bond market In order to observe the dynamic relationship between the bond market and the loan market this paper focus on a time-series method First we use a multiple regression to make a preliminary judgment Further we use the VAR (vector autoregression) model the impulse response function and the Granger causality test to investigate the dynamic relationship between the bond market and the loan market This research uses time series data at the aggregate level of United States banks for each quarter from 1984 first quarter to 2015 third quarter which are collected from the Federal Deposit Insurance Corporation (FDIC) and the Datastream database The empirical results show that non-performing loans have a significant sustained and positive relation to loan loss provision The CCC_spread has a significant sustained and positive relation to loan loss provision The CCC_spread also has a significant sustained and positive relation to non-performing loans The findings support the premise that the loan market and the bond market have a specific connection and that the information transmitted from one market to the other is not immediate
Date of Award2016 Jul 5
Original languageEnglish
SupervisorTse-Shih Wang (Supervisor)

Cite this

Does High-yield Bond Market Contain Default Risk Information for Non-performing Loans?
宜靜, 何. (Author). 2016 Jul 5

Student thesis: Master's Thesis