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Australian and US interest rate swap markets: comparison and linkages
Author(s) -
In Francis,
Fang Victor,
Brown Rob
Publication year - 2004
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2004.00098.x
Subject(s) - interest rate swap , swap (finance) , interest rate , variance swap , volatility (finance) , market liquidity , economics , credit default swap , monetary economics , financial economics , liquidity premium , risk premium , volatility swap , econometrics , business , credit risk , implied volatility , liquidity risk , actuarial science , finance
We investigate and compare the determinants of US and Australian interest rate swap spreads and the linkages between these markets. The slope of the risk‐free term structure is the most significant determinant and its importance is greater for longer terms to maturity. Interest rate levels and, in Australia, the default premium also have some impact. The influences of interest rate volatility, the liquidity premium and (in the USA) the default premium are small or negligible. We hypothesise, and our evidence confirms, that the US swap market significantly affects the Australian swap market but not vice‐versa .