Evaluating Duration Times Spread (DTS) in the Korean Corporate Bond Market: Spread–Volatility Dynamics and Implications for Portfolio Management

This study evaluates the Duration Times Spread (DTS) framework in the Korean corporate bond market. Using a comprehensive dataset covering more than 3.8 million bond–month observations from 2010 to 2020, we examine whether the key empirical properties underlying DTS—the proportional relationship between spread levels and spread volatility—hold in this market. Our results show that both systematic and idiosyncratic spread volatilities are proportional to the level of spreads, and that excess return volatility increases proportionally with DTS. These findings confirm the central assumptions of the DTS framework and demonstrate that relative spread changes provide a more stable basis for forecasting excess return volatility than absolute spread changes. When compared against the traditional spread-duration approach, DTS yields residuals that are closer to zero on average and more tightly distributed, indicating superior forecasting accuracy. Overall, the evidence extends the applicability of DTS to an understudied fixed-income market and highlights its usefulness for credit risk measurement, portfolio construction, and volatility forecasting in the Korean corporate bond market.