Abstract
We use a 3-factor Regime Switching Threshold model to study common factors in the excess returns of 18 European corporate bond indices during 2000-2014. Our results document significant time variation of the common factors across bond indices for different maturities, ratings and industries. The conditional response is particularly evident for the liquidity factor. We also compare models with different transition variables and identify key drivers of regime switches in the excess returns of sample bond indices.
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