Analysis of the Impact of the Financial Crisis on the Return Correlation Between Corporate Bonds and Enterprise Bonds: An Empirical Study Based on the Bivariate t-Copula Model

DOI: https://doi.org/10.62517/jbm.202509516

Author(s)

Xinmeng Hou, Siqi Liu

Affiliation(s)

School of Economics, Guangzhou College of Commerce, Guangzhou, Guangdong, China

Abstract

Corporate bonds and enterprise bonds are the most common financial products in the bond market. This paper takes the corporate bond and enterprise bond indices in the Shanghai and Shenzhen stock markets as research subjects, with the 2015 domestic financial crisis as the risk event. The sample of corporate and enterprise bonds is divided into two sub-samples: pre- and post-financial crisis. Using a binary Copula model, the study examines the impact of the risk event on the return correlation between corporate and enterprise bonds by comparing their correlations, particularly tail dependencies, before and after the crisis. A possible mechanism is also proposed. The study finds that the binary t-Copula model better fits the daily return series of corporate and enterprise bond indices both before and after the financial crisis. The estimated tail correlation coefficients indicate strong correlations and tail dependencies between corporate and enterprise bond returns both before and after the crisis. Moreover, these correlations and tail dependencies significantly strengthened in the post-crisis period.

Keywords

Corporate Bond Returns; Enterprise Bond Returns; Binary t-Copula Model; Financial Crisis

References

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