Skip to main content
Top
Published in: Journal of Economics and Finance 3/2022

06-04-2022

Determinants of Interest rate swap spreads: A quantile regression approach

Author: Kenneth A. Tah

Published in: Journal of Economics and Finance | Issue 3/2022

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

This paper analyzes whether the determinants of interest rate swap spreads are homogenous along quantiles of conditional interest rate swap spreads. Our empirical results suggest quantile parameter heterogeneity within and between the long-term (10-year) and short-term (2-year) spreads. The effect of default and ted on both 10- and 2-year interest rate swap spreads increases across quantiles; the default and ted effects increase at a decreasing rate (concave down) and increasing rate (concave up), respectively. The effect of slope and volatility on 10-year interest rate swap spreads is low at the middle quantile (U-shape), whereas the effect of slope and volatility on 2-year interest rate swaps is high at the middle quantile (inverted U-shape). Additionally, using the coefficient equality test, we find that in most cases, the estimated coefficients at both the lower and the higher quantiles are significantly different from the median coefficient.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Footnotes
1
See, for example, Brown, Harlow, and Smith (1994) and Nielsen and Ronn (1996).
 
Literature
go back to reference Brown KC, Harlow WV, Smith DJ (1994) An empirical analysis of interest rate swap spreads. Journal of Fixed Income 3:61–78CrossRef Brown KC, Harlow WV, Smith DJ (1994) An empirical analysis of interest rate swap spreads. Journal of Fixed Income 3:61–78CrossRef
go back to reference Duffie D, Singleton KJ (1997) An Econometric Model of the Term Structure of Interest-Rate Swap Yields. Journal of Finance 52:1287–1321CrossRef Duffie D, Singleton KJ (1997) An Econometric Model of the Term Structure of Interest-Rate Swap Yields. Journal of Finance 52:1287–1321CrossRef
go back to reference Eom YH, Subrahmanyam MG, Uno J (2002) Transmission of swap spreads and volatilities in the Japanese swap market. J Fixed Income 12(1):6–29CrossRef Eom YH, Subrahmanyam MG, Uno J (2002) Transmission of swap spreads and volatilities in the Japanese swap market. J Fixed Income 12(1):6–29CrossRef
go back to reference Fehle F (2003) The Components of Interest Rate Swap Spreads: Theory and International Evidence. J Futur Mark 23:347–387CrossRef Fehle F (2003) The Components of Interest Rate Swap Spreads: Theory and International Evidence. J Futur Mark 23:347–387CrossRef
go back to reference He X, Portnoy S (2000) Some asymptotic results on bivariate quantile splines. J Stat Plan Inference 91(2):341–49CrossRef He X, Portnoy S (2000) Some asymptotic results on bivariate quantile splines. J Stat Plan Inference 91(2):341–49CrossRef
go back to reference Hamano M (1997) Empirical study of the yen interest rate swap spread. Gendai Finance (modern Finance) 1:55–67 Hamano M (1997) Empirical study of the yen interest rate swap spread. Gendai Finance (modern Finance) 1:55–67
go back to reference In F, Brown R, Fang V (2003) Modeling volatility and changes in the swap spread. Int Rev Financ Anal 12:545–561CrossRef In F, Brown R, Fang V (2003) Modeling volatility and changes in the swap spread. Int Rev Financ Anal 12:545–561CrossRef
go back to reference Ito T (2007) The analysis of interest rate swap spreads in Japan. Applied Financial Economics Letters 3(1):1CrossRef Ito T (2007) The analysis of interest rate swap spreads in Japan. Applied Financial Economics Letters 3(1):1CrossRef
go back to reference Lekkos I, Milas C (2001) Identifying the Factors that Affect Interest-Rate Swap Spreads: Some Evidence from The United States and United Kingdom. J Futur Mark 21:737–768CrossRef Lekkos I, Milas C (2001) Identifying the Factors that Affect Interest-Rate Swap Spreads: Some Evidence from The United States and United Kingdom. J Futur Mark 21:737–768CrossRef
go back to reference Lekkos I, Milas C (2004) Common Risk Factors in The U.S. and UK Interest Rate Swap Markets: Evidence from A Nonlinear Vector Autoregression Approach. J Futur Mark 24:221–250CrossRef Lekkos I, Milas C (2004) Common Risk Factors in The U.S. and UK Interest Rate Swap Markets: Evidence from A Nonlinear Vector Autoregression Approach. J Futur Mark 24:221–250CrossRef
go back to reference Liu J, Longstaff FA, Mandell RE (2006) The market price of risk in interest rate swaps: the roles of default and liquidity risks. J Bus 79(5):2337–2359CrossRef Liu J, Longstaff FA, Mandell RE (2006) The market price of risk in interest rate swaps: the roles of default and liquidity risks. J Bus 79(5):2337–2359CrossRef
go back to reference Koenker R (2005) Quantile Regression. Cambridge University Press, CambridgeCrossRef Koenker R (2005) Quantile Regression. Cambridge University Press, CambridgeCrossRef
go back to reference Koenker R, Bassett G (1982) Robust Tests for Heteroskedasticity Based on Regression Quantiles. Econometrica 50(1):43–62CrossRef Koenker R, Bassett G (1982) Robust Tests for Heteroskedasticity Based on Regression Quantiles. Econometrica 50(1):43–62CrossRef
go back to reference Lang LH, Litzenberger RH, Liu AL (1998) Determinants of interest rate swap spreads. J Bank Finance 22:1507–1532CrossRef Lang LH, Litzenberger RH, Liu AL (1998) Determinants of interest rate swap spreads. J Bank Finance 22:1507–1532CrossRef
go back to reference Nielsen SS, Ronn EI (1996) The valuation of default risk in corporate bonds and interest rate swaps. Working papers - Financial Institutions Center at The Wharton School, January, 1 Nielsen SS, Ronn EI (1996) The valuation of default risk in corporate bonds and interest rate swaps. Working papers - Financial Institutions Center at The Wharton School, January, 1
go back to reference Sorensen EH, Thierry FB (1994) Pricing Swap Default Risk. Financ Anal J 50:23–33CrossRef Sorensen EH, Thierry FB (1994) Pricing Swap Default Risk. Financ Anal J 50:23–33CrossRef
go back to reference Stigler SM (2010) The changing history of robustness. Am Stat 64(4):277–281CrossRef Stigler SM (2010) The changing history of robustness. Am Stat 64(4):277–281CrossRef
go back to reference Sun TS, Sundaresan S, Wang C (1993) Interest rate swaps: An Empirical Investigation. J Financ Econ 34:77–99CrossRef Sun TS, Sundaresan S, Wang C (1993) Interest rate swaps: An Empirical Investigation. J Financ Econ 34:77–99CrossRef
Metadata
Title
Determinants of Interest rate swap spreads: A quantile regression approach
Author
Kenneth A. Tah
Publication date
06-04-2022
Publisher
Springer US
Published in
Journal of Economics and Finance / Issue 3/2022
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-022-09574-y

Other articles of this Issue 3/2022

Journal of Economics and Finance 3/2022 Go to the issue