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Measuring Corporate Bond Market Dislocations
We measure dislocations in the market for corporate bonds in real time with the Corporate Bond Market Distress Index (CMDI), allowing for the aggregation of a broad set of measures of market functioning from primary and secondary bond markets into a single measure. The index quantifies dislocations from a preponderance-of-metrics perspective, ensuring that the measure of market distress is not driven by any one statistic. We document that the index correctly identifies periods of dislocations, is robust to alternative choices of the aggregation procedure, and provides differential predictive ...
Measuring the Forest through the Trees: The Corporate Bond Market Distress Index
With more than $10.4 trillion outstanding as of Q3:2020, the U.S. corporate bond market is a significant source of funding for most large U.S. corporations. While prior literature offers a variety of measures to capture different aspects of corporate bond market functioning, there is little consensus on how to use those measures to identify periods of distress in the market as a whole. In this post, we describe the U.S. Corporate Bond Market Distress Index (CMDI), which offers a single measure to quantify joint dislocations in the primary and secondary corporate bond markets. As detailed in a ...