Graduation Year
2024
Date of Submission
4-2024
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Julio Garín
Terms of Use & License Information
Rights Information
© 2024 Aaron X Onate
Abstract
I examine how unexpected changes in the level, slope, and curvature of the yield curve impact the expected total monthly stock returns of publicly-traded Business Development Companies via the Cliffwater BDC Index from Jan 2005 to Dec 2023. I estimate the yield curve factors via the dynamic Nelson-Siegel term structure factor model, accounting for interest rate changes absent the effects of inflation. I incorporate these factors into three models, using linear and nonlinear approaches, that seek to explain BDC interest rate exposure. The three models find suggestive evidence of BDC stock returns exhibiting asymmetric sensitivity to the level, slope, and curvature of the Treasury yield curve across bull and bear market regimes. During bear markets, BDC returns exhibit significantly larger, net positive and economically significant sensitivities. While BDCs stand to benefit from interest rate increases regardless of the regime, I attribute this increased return (loss) potential of BDCs to their ability to capture movements in short term interest rates by way of floating rate loans.
Recommended Citation
Oñate, Aaron, "Unveiling Nonlinearities: Examining the Asymmetric Relationship Between Interest Rates and Business Development Company Stock Returns" (2024). CMC Senior Theses. 3660.
https://scholarship.claremont.edu/cmc_theses/3660
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.
