Samir Kadiric/Arthur Korus: The Effects of Brexit on Corporate Yield Spreads: Evidence from UK and Eurozone Corporate Bond Markets
Samir Kadiric/Arthur Korus: The Effects of Brexit on Corporate Yield Spreads: Evidence from UK and Eurozone Corporate Bond Markets
JEL Classification: C32, G12, G14, G32
Key Words: Corporate Bond Yield Spreads, Credit Risk, Brexit, Event-study
Summary
Using event-study techniques we investigate the impact of Brexit-related events on the corporate bond yield spreads in the United Kingdom and euro area, respectively. We want to find out whether Brexit-related news, including the Brexit referendum itself, had an impact on the risk conditions in those two corporate bond markets. Our estimation results indicate that the announcement of the referendum result is associated with increasing credit spreads in the UK and EA. However, only the actual announcement of the UK referendum result itself had an influence on the credit spreads. Furthermore, we distinguish between the financial and the non-financial economic sectors in order to analyze more specific sector-related effects of the referendum event. Our estimation results suggest that UK credit spreads were more strongly influenced by the announcement of the results of the Brexit referendum than credit bond spreads in the euro area were. Finally, we split our sample into pre-referendum and post-referendum periods to consider the potential changing evaluation of the determinants of corporate bond spreads due to altering risk pricing triggered by the Brexit referendum result. We find that the effect of credit default risk is far stronger and plays a significant role in the post-referendum period in UK and EA, respectively.
