List of Stylized Financial Facts

List of Stylized Financial Facts

This list aims to collect a variety of stylized facts about the behaviour of financial variables. These are simple statements collected from various sources and may or not withstand rigorous analysis or the simple passage of time

• Yields for longer-maturity bonds tend to be greater than yields for shorter-maturity bonds.
• Monthly fluctuations in short-maturity yields tend to be larger than monthly fluctuations in longer-maturity yields.
• When short-maturity yields are low, longer-maturity yields are normally higher than the shorter-maturity yields (a standard shaped yield curve).
• When short-maturity yields are high, longer-maturity yields are often lower than shorter-maturity yields (an inverted yield curve).
• Interest rates can be negative.
• Corporate credit spreads are wider for lower-credit-quality instruments. However, credit costs represent only a fraction of the spread on corporate bonds, which suggests that some portion of corporate bond spreads is due to factors other than credit costs (e.g., liquidity).
• There is a tendency for corporate credit spreads to fluctuate more during recessionary periods.
• The probabilities of default will fluctuate with general economic conditions and firm- or industry-specific conditions.
• Equity returns exhibit both higher expected returns and higher volatility than fixed-income returns.
• The volatility of equity returns fluctuates significantly over time and it exhibits clustering
• Correlations between modelled economic and financial market variables are not stable over time and can depend on whether monthly, quarterly or annual observations are being used
• The autocorrelation of returns is often low
• The distribution of returns displays heavy tails and the Gaussianity assumption is generally not satisfied