The Study About Response From Company Credit To Idiosyncratic Volatility Of Equity?

Many studies had proved that idiosyncratic equity volatility is the residual volatility after controlling the risk factors of the market system,including the factors that cannot be explained by fundamentals such like the information about company credit.Credit spread of corporate bonds is the risk premium that would response the company credit directly.This thesis try to figure out whether the information about company credit could be reacted by the idiosyncratic equity volatility.The problem whether the information about company credit could be reacted by the idiosyncratic equity volatility is figuratively to discuss the impact of idiosyncratic stock volatility on corporate bond spreads.This thesis employed the full sample data of corporate bond on Chinese mainland market,and discussed in different sub-samples by controlling the characteristics strictly in the aspect of bond and equity.The conclusion of this thesis can provide some reference for the company's financial management and pricing analysis of its bond issuance and a guiding to investors in portfolio management and risk diversification.Therefore this thesis include the corporate bond issued in Chinese market over the 10-year period,2008 through 2017,meanwhile thoes companies had issued stocks on public.Controlling the characteristics strictly about the full sample bonds and employing the regression framework of Collin-Dufresne et al.(2001)and adding the suitable variables including the lag of idiosyncratic equity volatility,the lag of bond credit spread and the idiosyncratic equity volatility of full sample for Chinese market.In order to analyze the dynamic relations among spreads,volatility and other variables,this thesis consider a vector auto-regression(VAR)model in addition.The findings from our study that are robust to variety tests: First,the information about company credit can be reacted by the idiosyncratic equity volatility under strict conditions.Those conditions include a relatively stable state of production and operation of the company,an effective price of the corporate bond and an effective market.Although the idiosyncratic volatility does not systematically capture information on changes in bond spreads,the significant difference in results between sub-samples reflects the specific conditions under which trait volatility reflects the information of company credit.Second,the macroeconomic theoretical variables can effect the credit spread of corporate bond significantly.Employing the regression framework of Collin-Dufresne et al.(2001)and a vector auto-regression(VAR)model,this thesis found that risk-free interest rate is significantly negatively correlated with corporate bond spreads,and the Slope is significantly positively correlated with corporate bond spreads.Third,past change of idiosyncratic equity volatility Granger-cause the bond spread in the portfolios of long-term bonds and option free bonds.