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

The Merton case corresponds to state 1; the Kamin and von Kleist case corresponds to state 2.