Marco normativo de las Terapias Avanzadas

This chapter uses the spliced ABX index employed by Longstaff (2010) as a benchmark

case for testing for contagion within the indexes.4 These results are then compared to

those obtained using the traded ABX 06-1 and 06-2 vintages in order to ascertain if there exist significant differences between vintages and also if splicing the data could

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influence results.5 ABX data have been obtained from the Markit Group Ltd. and weekly (Wednesday to Wednesday) percentage changes are used in the analysis. The sample period ranges from January 19, 2006, to December 31, 2009, for both the spliced ABX index and the ABX 06-1 vintage. Because the ABX 06-2 vintage was not issued until July 19, 2006, the data set is unbalanced as the sample period runs from July 19, 2006, to December 31, 2009, for this vintage.

4.3.1. Longstaff (2010) Spliced ABX Index

Longstaff (2010) constructs an on-the-run ABX index by splicing the series together at the date that each new vintage is issued. The series is therefore spliced together on 19 July 2006, 19 January 2007 and 19 July 2007, respectively. As each new series began trading at par it is necessary to re-base the series at each splicing date.

The sample is divided into three separate one-year periods, the 2006 “pre-crisis” pe- riod, the 2007 “subprime-crisis” period and the 2008 “global-crisis” period, to test for contagion when moving from tranquil “normal” market conditions to a volatile crisis period. We extend the original sample to include 2009 as a “post-crisis” period.

4.4. Preliminary Analysis

Figures 4.1, 4.2 and 4.3 plot the time series of ABX weekly returns for each of the ABX data sets analysed for the entire sample period.

[Insert Figures 4.1 - 4.3 about here]

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The ABX 07-1 and 07-2 vintages are not analysed due to the fact that they were both issued in the volatile period of 2007 and so do not provide a tranquil non-crisis period with which to compare results.

These illustrate that during the 2006 “normal” period all five ABX assets were stable in each ABX series analysed. From 2007 onwards, however, returns in all three indexes become increasingly volatile as the crisis hit. This volatility continues throughout 2008 and 2009, although it does diminish somewhat. However, returns do not revert to the stable values experienced during 2006, suggesting that this market was still subject to volatility during the “post-crisis” period.

[Insert Tables 4.1 - 4.3 about here]

Tables 4.1, 4.2 and 4.3 report summary statistics for weekly percentage returns for the three ABX data sets examined in each of the four years in the sample period. The results suggest that normality is rejected in all cases, evidenced by excess kurtosis and negative skewness in almost all cases. In 2006 the two highest ratings in the spliced ABX index experience positive mean returns, reflecting this relatively stable period. All mean returns are positive for the ABX 06-1 vintage during 2006, contrasting with the ABX 06-2 vintage, in which all assets are mean negative. These differences are probably driven by the differing quality of the assets underlying the two traded vin- tages as the deals included in the ABX 06-1 vintage would have been originated in the second half of 2005 and so would be of considerably better quality than those included in the ABX 06-2 vintage. The descriptive statistics for 2007 reflect the volatile period entered into during that year. Mean returns are negative in all cases and are monoton- ically related to credit rating, indicating that the lower-rated assets were hit hardest during the subprime crisis. Unsurprisingly volatility of returns is considerably higher in 2007, 2008 and 2009 relative to 2006 but is not inversely related to credit rating as it suggests that the middle A-rated is the most volatile asset in both the spliced ABX index and the ABX 06-2 vintage while the BBB-rated asset is the most volatile in the

ABX 06-1 vintage. The effect of the crisis is also evidenced by the widening of the gap between minimum and maximum values relative to 2006 with the absolute minimum values exceeding the corresponding maximum values in all cases. The increase in the size of this gap indicates that the magnitudes of returns were fluctuating more during the crisis period.

Turning to 2008 mean returns become increasingly negative and standard deviations remain high, suggesting that the global credit crunch negatively affected ABX returns even more so than the subprime shock.

Summary statistics for the “post-crisis” period of 2009 exhibit some evidence of recov- ery as markets rebounded with some positive mean returns and declines in volatility. Overall, these descriptive statistics illustrate the effect of the subprime and global crises on the ABX evidenced by falling mean returns and higher standard deviations. The next step is to analyse if this higher volatility led to an increase in linkages be- tween these assets. As a preliminary examination of how the relationship between ABX tranches may have changed over the sample period Tables 4.4, 4.5 and 4.6 report raw correlations for weekly percentage returns of the three ABX data sets examined for each of the four years in the sample period.

[Insert Tables 4.4 - 4.6 about here]

The average correlation among ABX assets increases considerably between 2006 and 2007, indicating that during the “subprime-crisis” period these assets were subject to higher degrees of co-movement, consistent with the assets experiencing a common shock. This then decreases during the subsequent “global-crisis” and “post-crisis” pe- riods, suggesting that linkages between these assets were strongest during the subprime crisis. In order to further examine how the correlation among these assets may have

changed over time rolling correlations are calculated using a window width of 24. This window width is chosen due to the relatively short data range and also as the ABX 06-2 vintage was issued six months after the ABX 06-1 vintage. Alternative window widths are also employed and our conclusions do not change.

[Insert Figures 4.4 - 4.6 about here]

Figures 4.4, 4.5 and 4.6 indicate that these experienced different relationships during the sample period, and also that the relationships between the ratings tranches differed across the three ABX series examined. For the traded assets this again suggests that the vintages should be treated as separate entities and it also highlights differences between the spliced ABX index and those ABX vintages that investors were actually purchasing in the market. For example, the correlation between the two highest-rated assets in the spliced ABX index increases during 2007, as the crisis hit, and then declines during 2008 before settling close to its pre-crisis pattern. However, the correlation between the similarly rated assets in the ABX 06-1 vintage, while also increasing with the onset of 2007, remained relatively high throughout 2008 and 2009 and does not revert to its pre-crisis level. Comparing these with correlations between the AAA- and AA-rated assets in the ABX 06-2 vintage we see an initial high correlation that remains until mid- 2008 before falling substantially. These differences could be due to the higher quality of the underlying assets in the ABX 06-1 vintage causing the two higher ratings to behave similarly during crisis periods, while those comprising the ABX 06-2 vintage were of lower quality and so the two highest ratings tranches became increasingly heterogeneous over the volatile sample period. Overall these results again indicate that these assets became increasingly interrelated once the subprime crisis hit in 2007. However, as Forbes & Rigobon (2002) prove, increased correlation does not necessarily

constitute contagion. In order to examine the relationship between these assets we therefore employ the VAR framework presented by Longstaff (2010).