Empirical Analysis On Determinants Of Corporate Bond Yield Spread In Shenzhen Stock Exchange And Shanghai Stock Exchange

Bond market in China has been developing gradually, and it becomes more andmore important in capital market. Bond markets in Shenzhen Stock Exchange andShanghai Stock Exchange also develop well, and the development of corporate bondmarket has significant effect on corporate financing. Study on corporate bond spreadhas great significance. Although people generally think that many factors affectcorporate bond spread, but most of the literatures focus on default risk and credit risk.Therefore, a more systemic and comprehensive theoretical analysis and empiricalresearch is lacked, which needs to conduct more in-depth and detailed research oninfluencing factors of corporate bond spread.The paper mainly used quantitative analysis methods, and some qualitativeanalysis methods. The research combined theoretical approach with empiricalapproach. It studied the influences of macroeconomic factors, capital market factorsand individual bond factors on corporate bond spread, and then made comprehensiveanalysis by using kalman filtering methods. The main contents of the research were asfollows:Firstly, this paper analyzed theoretical basis for research on determinants ofcorporate bond yield spread. It cleared the scope of corporate bond and defined thedefinition of corporate bond spread. Then the paper deeply analyzed determinantfactors of corporate bond spread and introduced research methods of corporate bondyield spread. They laid foundation for empirical analysis.Secondly, the paper researched on influences of macroeconomic factors oncorporate bond spread. By using Auto-Regressive Conditional Heteroskedasticitymodel the paper analyzed features of corporate bond yields, and found corporate bondyields follow volatility-clustering, but they don’t have asymmetry. According toEntrepreneur Expectation Index, Consumer Confidence Index and Business ClimateIndex, the economy slowed gradually in2012. Subsequently, the paper innovativelychose nine factors as independent variables, and they represented manufacturingindustry development, inflation, changes in money supply and exchange fluctuations.By doing regression with the nine independent variables gradually, ppi and cgpi werefound to be significant, which meant producer price changes had important impact on corporate bond spread. Also, exchange rate factor had significantly negative relationwith corporate bond spread. Industrial value added factor had significantly negativerelation with corporate bond spread, and it represented macroeconomic development,but the coefficient was small. PMI negatively correlated with corporate bond spreadsignificantly, but according to coefficients it’s less important than price changes. Atlast, by using data in2011, the paper did robustness test.Again, the paper analyzed the influences of capital market factors on corporatebond spread. Mainly by using panel data it analyzed the impact of aggregate bondindex, Hs300index, bond idiosyncratic volatility and stock idiosyncratic volatility oncorporate bond spread. And found Hs300significantly correlate with corporate bondspread negatively, and aggregate bond index significantly correlate with corporatebond spread positively, meanwhile, bond idiosyncratic volatility and stockidiosyncratic volatility have significantly positive relations with corporate bond spread,but Hs300index is less important than aggregate bond index. Also stock idiosyncraticvolatility was less important than bond idiosyncratic volatility, and this was a newfinding in the paper. At last, by using data in2011, the paper did robustness test.Then, the paper analyzed the influences of bond individual factors on corporatebond spread from two aspects. On the one hand, by using panel data the paperanalyzed the influences of corporate size and value factors based on bond market,corporate size and value factors based on equity market, term, default and creditratings on corporate bond spread. It was found that the corporate size based on bondmarket has significantly positive relation with corporate bond spread, because smallercompanies usually issued bonds with higher yields, but bigger companies issued bondswith lower yields. Default and term factors correlated with corporate bond spreadpositively. Corporate size factor based on stock market significantly correlated withcorporate bond spread positively. By adding dummy variables of bond credit ratingsinto the model, it was found that they significantly correlate with corporate bondspread negatively. On the other hand, by using panel data, the liquidity proxy variableswere used as independent variables to measure the impact of liquidity factors oncorporate bond spread. By using squared price return as yield volatility factor, it isfound that it significantly correlate with corporate bond yield spread positively. Whenprice returns volatility turned larger, bond trading uncertainty turned larger, and riskaggregated, so corporate bond spread increased. Corporate bond issued amount had asignificantly negative relation with corporate bond spread. Larger issued amount would lead to lower liquidity risk, and caused smaller corporate bond spread. Tradingvolume strongly correlated with bond transactions. So got rid of trading volume, andbond transaction variable was significant, but it wasn’t consistent with the nullhypothesis. Referred to bond age, the paper made some improvements according toliteratures. By taking thresholds of4months,8months,12months,16months,20months and24months respectively to divide bonds into young ones and old ones, andgets6groups. Found bond age have a significantly negative relation with corporatebond spread, moreover the12month threshold is proper for corporate bond market inChina. At last, by using data in2011, the paper did robustness test.Finally, the paper studied corporate bond yields by using term structure affinemodel and Kalman filtering, and innovatively made comprehensive analysis aboutcorporate bond spread. On the one hand, the paper built the term structure of corporatebond yields with N-factor affine model, and estimated the parameters by using Kalmanfiltering by using weekly average corporate bond yields data in Shanghai StockExchange and Shenzhen Stock Exchange. It was found that the one-factor model andtwo-factor model could do one step forward forecasting well, but the three-factormodel could fit the observed data well. On the other hand, by using Kalman filtering,the research did comprehensive analysis about corporate bond spread. The resultsindicated the state space model referred to time varying coefficients of the factors, andit could fit the model better.By doing the study on corporate bond spread influencing factors, on the one hand,it could find the factors which influence corporate bond spread, and provide advicesfor investors’ investment, and provide advices for issuers, also, provide basis forShenzhen Stock Exchange and Shanghai Stock Exchange regulators to make policies,which had great practical significance. On the other hand, it improved the research onthe area, and it had important theoretical implication.