Research Article
Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
Table 2
Transition probabilities between state 1 and state 2 for all models.
| Regime switch in means only | Sensitivity | BBB hedged by short UST |
| State from/to | State 1 | State 2 | State from/to | State 1 | State 2 | State 1 | 0.838 | 0.162 | State 1 | 0.987 | 0.013 | State 2 | 0.033 | 0.967 | State 2 | 0.104 | 0.897 |
| Regime switch in means and standard deviations | Sensitivity | BBB hedged by short UST | State from/to | State 1 | State 2 | State from/to | State 1 | State 2 | State 1 | 0.837 | 0.163 | State 1 | 0.987 | 0.013 | State 2 | 0.111 | 0.889 | State 2 | 0.087 | 0.913 |
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The Merton case corresponds to state 1; the Kamin and von Kleist case corresponds to state 2.
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