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Applied Economics Volume 39, 2007 - Issue 21
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Original Articles

Are adjustments in the default risk premium asymmetric?

Mark A. Thompson Institute for Economic Advancement, University of Arkansas at Little Rock, Little Rock, AR, 72204-1099 E-mail: [email protected]
Pages 2693-2698 | Published online: 11 Apr 2011
 
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Abstract

This article employs threshold cointegration and error-correction models to the default risk premium. The approach allows asymmetry in the dynamic process that has not been captured in previous studies of corporate credit spreads. The results indicate that the adjustment process is asymmetric and would be beneficial to investors and macroeconomic forecasters as the default risk premium may signal future business cycles.

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