International Journal of Financial Management

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Linkage between Stock Volatility and Corporate Bond Yield Spread in Singapore


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1 Assistant Professor, Nottingham University Business School, Malaysian Campus, Malaysia
     

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This paper aims to analyse the correlation between stock volatility and the corporate bond yield spreads in the Singapore Bond Market. For analysis purpose and to substantiate the findings the paper will make use of the Real Estate and Banking Sector of Singapore bond market for period of year 2000 - 2010. To capture the effect of equity volatility, Singaporean government security (SGS) interest rate and credit rating on corporate bond yield spread, OLS regression analysis was performed. Our findings concluded that the stock volatility is significantly correlated with the bond yield spread with an overall positive relationship in the presence of the credit rating and SGS interest rate spread. The analysis also concludes that the stock volatility has the highest explaining power to the yield spreads. The findings indicated that the stock volatility is very much significant in explaining the bond yield spreads with a positive correlation and is also the most powerful determinant of the yield spread.

Keywords

Stock Volatility, Corporate Bond Yield Spread, Market Risk
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  • Linkage between Stock Volatility and Corporate Bond Yield Spread in Singapore

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Authors

Nafis Alam
Assistant Professor, Nottingham University Business School, Malaysian Campus, Malaysia

Abstract


This paper aims to analyse the correlation between stock volatility and the corporate bond yield spreads in the Singapore Bond Market. For analysis purpose and to substantiate the findings the paper will make use of the Real Estate and Banking Sector of Singapore bond market for period of year 2000 - 2010. To capture the effect of equity volatility, Singaporean government security (SGS) interest rate and credit rating on corporate bond yield spread, OLS regression analysis was performed. Our findings concluded that the stock volatility is significantly correlated with the bond yield spread with an overall positive relationship in the presence of the credit rating and SGS interest rate spread. The analysis also concludes that the stock volatility has the highest explaining power to the yield spreads. The findings indicated that the stock volatility is very much significant in explaining the bond yield spreads with a positive correlation and is also the most powerful determinant of the yield spread.

Keywords


Stock Volatility, Corporate Bond Yield Spread, Market Risk

References