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Business cycles and the impact of macroeconomic surprises on interest rate swap spreads : Australian evidence

Fang, Victor, Azad, A. S. M. Sohel, Batten, Jonathan A. and Lin, Chien-Ting 2012, Business cycles and the impact of macroeconomic surprises on interest rate swap spreads : Australian evidence, in Contemporary studies in economic and financial analysis, Emerald Group Publishing, Bingley, England, pp.379-398.

Document type: Book Chapter
Collection: School of Accounting, Economics and Finance
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Title Business cycles and the impact of macroeconomic surprises on interest rate swap spreads : Australian evidence
Author(s) Fang, Victor
Azad, A. S. M. Sohel
Batten, Jonathan A.
Lin, Chien-Ting
Title of book Contemporary studies in economic and financial analysis
Editor(s) Batten, Jonathan A.
Wagner, Niklas
Publication date 2012
Series Derivative securities pricing and modelling; v. 94
Chapter number 16
Total chapters 17
Start page 379
End page 398
Total pages 20
Publisher Emerald Group Publishing
Place of Publication Bingley, England
Keyword(s) interest rate swap spreads
macroeconomic news
business cycles
probability of default
Summary This study examines the response of Australian interest rate swap spreads to the arrival of macroeconomic news information during the economic expansion and contraction periods. We find that the impact of news announcements on swap spread change differs and largely depends on the state of the economy. The unexpected inflation rate is the only news released that has significant impact on swap spreads across all maturities during contractions and remains the important news announcement throughout the business cycles, while the unanticipated unemployment rate tends to be more relevant to 10-year swap and the unanticipated change in money supply tends to be more relevant to 4- and 7-year swaps during expansions. We also find shocks from these news surprises appear to have significant impact on the conditional volatility of the swap spread change during both economic phases. The macroeconomic shocks in general are negatively related to the conditional volatility of the swap spread change, suggesting that the newsworthy announcements tend to reduce uncertainty on the news announcement days in the swap market during expansion and contraction periods.
ISBN 9781780526164
ISSN 1569-3759
Language eng
Field of Research 149999 Economics not elsewhere classified
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category B1 Book chapter
Copyright notice ©2012, Emerald Group Publishing Limited
Persistent URL http://hdl.handle.net/10536/DRO/DU:30042567
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